The G20 Finance Ministers and Central Bank Governors met last weekend in DC during World Bank/IMF meetings to discuss global economic conditions.  OECD Secretary General Gurria and UN Secretary General Ban Ki Moon also attended as did IMF Managing Director LaGarde and World Bank President Kim.

The US came in for heavy criticism for failing to fund and support IMF reform, although many US-led/supported reform issues — financial sector assessment and strengthening, structural economic reforms, public-private partnerships on infrastructure — remain at the center of the G-20 agenda.  There is a clear sense that the G20 will push past the U.S., the IMF’s largest shareholder, to expand its capital and the role of developing countries to ensure that the IMF is equipped to support global growth and mitigate economic fragility.

Greece was not mentioned in the G20 Communique [1] but concern about whether Athens can agree on new bailout terms with its European Union and IMF lenders in time to avoid defaulting on big upcoming debt payments cast a cloud over the gathering. There was much hand-wringing about the potential impact of Greece on the Euro zone’s fragile growth. At the same time, the G20 Finance Ministers and Central Bank heads were mildly optimistic regarding global growth, especially in developed economies.  G20 officials cite recovery in the Euro zone and Japan, solid US and UK growth, trade expansion and economic reform and low oil prices.

G20 officials, representing 80 percent of global GDP, are clearly aware of enormous risks and uncertainties. They referred to the challenges of exchange rate volatility (and many still fear a sharp increase in US interest rates and instability in emerging markets), geopolitical instability, high public debt and economic imbalances. While referencing relatively high growth in India and Brazil, they alluded to structural weaknesses in emerging markets.  They didn’t mention underlying weakness in China’s financial markets (where the real estate bubble has collapsed but an equity market bubble is forming as easy money continues) and serious economic challenges in Turkey, the current G20 chair, for example. IMF LaGarde lauded Turkey’s reforms, none recent, in an apparent effort to encourage liberalization after upcoming elections.

The G20 and IMF LaGarde do not think it is a good time for further austerity but at the same time they are warning that labor market and education reforms, regulatory efficiency and openness to trade and investment, as well as the health of banking systems must be a priority in order to avoid negative outcomes of continued monetary easing.

To help spur global growth and job creation, the G20 have prioritized infrastructure activities and investment. Major efforts are underway, including country-specific investment strategies to strengthen capacity building, expand public-private partnerships and to make good use of multilateral and national development bank resources.  At the same time, they would like to facilitate development of appropriate financial vehicles and asset-based financing structures.  Initial results are expected before their November Antalya Summit.

The G20 also continue to work to strengthen banking system and insurance sectors and make them more resilient in the face of fragile global conditions.  This includes work on the common international standard on total loss absorbing capacity for global systemically important banks,  and to ensure that the International Association of Insurance Supervisors finalize higher loss absorbency requirements for global systemically important insurers. The G20 officials also referenced the need for progress on transparent, harmonized securitization standards and lauded the work of the Financial Stability Board (FSB) to assess financial stability risks in asset management activities, and the OECD’s work on modernizing international tax systems, and to address them through cross-border cooperation.

The Communique also expresses its disappointment with the United States’ failures to help implement IMF reforms agreed in 2010 by urging them to do so quickly while making clear that the G20 will implement “interim” approaches.  Many interpret this as a loss of US influence. However, few other countries draw such attention and have such a strong overall influence on the G20 agenda, which is focused on cooperation and concrete reduction of global economic risk.