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19 May 2016, Gateway House

T20 in Lima: a Latin insight

A T20 workshop in Lima, Peru, provided the opportunity to for a deeper insight into the the Latin American economic situation. While the workshop focused on finding innovative solutions to sustain high growth in middle-income countries. There is a need for India and similar countries, to become sensitized to each others problems on development.

Director, Gateway House

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In 1999, a group of Finance Ministers of the world’s 20 largest economies who had been interacting occasionally, was formalized. Following the beginning of the great recession in 2007 the heads of government of the same 20 large economies began to meet under the rubric of the Group of Twenty (G20). However, as the global economy commenced a slow climb upwards, the original Group of Seven (G7) countries – Canada, France, Germany, Great Britain, Italy, Japan, and the United States – lost interest in the G20 forum.

The grouping has regained significance as global growth has faltered again and the contribution of developing countries to global growth is expanding. This is evident by the last few meetings. The chairmanship of the G20 passes to a different country every year and in the last few years, developing countries Turkey (2015), Russia (2013) and Mexico (2012) have hosted summits. This year China is the host with the presidency to be returned to the developed world – Germany – in 2017.

Meanwhile the G20 forum has grown in substance by spawning numerous sub-forums – Business 20, Civil 20, Labour 20, Youth 20, Women 20 and of immediate interest, the Think 20 or the T20. Each of these sub-forums meets several times in the year in the lead-up to the summit. China has so far hosted 5 T20 workshops/meetings with themes such as Global Financial Governance and Innovation, International development finance, Growth and Sustainable Development Goals. More meetings of the T20 are to be held in Berlin, Geneva and Beijing before the summit – later this year. The idea is that recommendations derived from the deliberations at these workshops are fed into the high level consideration of how best the issues afflicting the global economy can be addressed.

Although Peru is not a member of the T20 it has become a favoured venue for numerous conferences. Therefore one of the T20 workshops was held in the capital Lima on April 25th and 26th. The organizers lived up to the enviable reputation Peru has attained as a conference capital by ensuring that the workshop in Lima was superbly organised by privately run Center for Peru-China Studies, Universidad del Pacifico, Lima in partnership with Institute of World Economics and Politics – Chinese Academy of Social Sciences, Shanghai Institutes for International Studies, Chongyang Institute for Financial Studies – Renmin University of China and Economic Policy Forum.

Lima is a charming city and we had the opportunity to visit its Spanish era palazzos and churches and the site of some amazing Huacca pyramids built in 700 AD well before the era of the more famous Inca civilization.

I participated in the workshop in Lima with the theme “International Development Financing System for Inclusive Growth: Partnership and Prosperity issues in Developing Countries”. The stage was set by an opening address by Dr. Yuyan Zhang, the Director of Institute of World Economics and Politics, Chinese Academy of Social Sciences with a plea for win-win solutions to current economic problems through partnership rather than competition. He drove home his point by invoking the ‘prisoners dilemma’ whereby everybody wins through cooperation and everybody is worse off if any party tries to get the better of the others.

Considering that China is the second largest economy in the world Dr. Zhang called for less dogma and more creative economic thinking. In order to come up with more unorthodox solutions, the Chinese presidency of the G20 will propose, probably at the Summit, a Trade and Investment Working Group of the G20 to promote cooperative expansion in 4 areas: trade, the harmonization of global investment policies, harmonizing the multilateral trading system and more universal value systems. It is difficult to decipher how these how these grand formulations will translate into global agreements.

Because the workshop was in Lima we got a succinct introduction to the Peruvian economy and its specific challenges through a superb address from Dr. Julio Velarde, the President of the Central Reserve Bank of Peru. In addition experts from Mexico, Brazil, Colombia, Argentina and Chile spoke at various other panels highlighting the experience of Latin American countries which is quite different from the experience of Asian countries, perhaps because they are, in the memorable words of a former Mexican foreign minister, “so near the USA and so far from God.“

Collectively the Latin American experts expressed a preference for more regional and sub-regional cooperation in trade rather than the mega trade arrangements like TPP and TTIP which exclude many developing countries. Some points stood out for me – One, the experience of LATAM (Latin American) countries which, being exporters of minerals and fossil fuels, have caught a cold from the slowdown in China. The second phenomenon is that many of their past and current problems arise out of movements in currency exchange rates, which they have no control over. Thirdly, that although they all suffer from capital flight, they are under pressure to subscribe to the orthodoxy of flexible exchange rates.

The session I participated in had the theme of Sustaining Growth in Developing Countries: Agenda and Financing Resources for Inclusive Developments but somehow the presentations made by the experts from South Korea and South Africa dealt with the obstacles that middle income countries need to overcome to sustain high growth rates such that they can reach the level of per capita income of an advanced economy. They also spoke of the necessity to substantially increase employment and productivity by attracting Foreign Direct Investment from private sources and contributions from International Financial Institutions through investment in human capital.

In an odd way, that made my task both easier and more difficult since India has only recently scraped into the World Bank definition of middle income countries – a grouping of countries with annual per capita income ranging from $1,000 to $12,000 – a range so wide that it is almost meaningless. By way of comparison it is difficult to identify the commonalities that India, which has a per capita GDP (current US$) of $1,581 has with Korea at $27,970 and even South Africa at $6,483. Most Latin American countries are also closer or above to the $12,000 mark, for example Chile – $14,528, Brazil – $11,726, and Peru – $6,541.

Therefore while the problem for India remains the imperative to generate more growth, countries nearer the $ 12,000 limit must concentrate on ways to raise productivity not to be caught in the middle income trap. Fortuitously the remedy for all countries is the same – invest in human resources by spending more on education. Here the Indian situation is problematic. Although school enrolment rates have risen steadily, the quality of education at all levels is a matter of concern. But India’s outlays on education at 3.3% and health at 1.4% respectively are too low. It is almost as if these two critical sectors have been outsourced to Indian and international NGO’s.

But all is not doom and gloom. India is today the fastest growing large economy achieving growth over 7% in the last two years. It has received over $39 billion of FDI in 2015. In addition India has benefited from inflows from multilateral institutions such as the World Bank, the IFC and the ADB – between 2010 and 2015 these have been $8 billion, and $5.4 billion and $4.4 billion respectively. Simultaneously India has extended over a billion dollars of aid to other developing countries, mostly in South Asia. India has helped develop hydro electric resources in Bhutan and Nepal, rail and road connectivity in Bangladesh and large-scale reconstruction projects post the 2003 Tsunami and post the end of the civil war in 2012 in Sri Lanka.

I came away from Peru, more and more convinced of the need for India and other still-developing countries to be sensitized to the different problems they face at their very different stages of development, juxtaposed with the state of the global economy and developed countries’ willingness to sustain free trade.

Neelam Deo is Co-founder and Director, Gateway House: Indian Council on Global Relations; She has been the Indian Ambassador to Denmark and Ivory Coast; and former Consul General in New York.

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