G-14 versus G-20 and Turkey’s position

I can understand why Turkish Prime Minister Recep Tayyip Erdoğan chose to include the G-20, a group of developed and emerging economies that commands 85 percent of the world’s gross domestic product (GDP), in his speech at a dinner that was attended by most of the ambassadors in Ankara last week. While I was at the dinner, sitting at the ambassadors’ table, carefully watching the facial expressions and body language of the prime minister, I realized how the issue is a sensitive one for Erdoğan, who seized the opportunity to convey a strongly worded message directly to diplomats from the leading economies.

It was apparent that Erdoğan seemed disturbed by a group, led by France and others, lobbying to institute a G-14 instead of a G-20 to direct the world’s economy and put the former in charge of regulating the financial tools and measures to stem another world economic crisis. If the lobby group gets what it wants, it would mean that Turkey, along with five other economies, would be left out of the loop. In Erdoğan’s mind, this is simply not an acceptable proposition.

“We know what was intended with the G-14,” said Erdoğan, stressing that his country is very concerned about the idea. He claimed that countries lobbying for a G-14 would soon realize their mistake, adding: “I hope they back out of that proposal. I just want to address the ambassadors who realize that anyone who sabotages the development of the G-20 will face their own challenges.”

This is not because Turkey will lose its seat at high-level summits, but rather it has to do with the fact that decisions made by the G-8, or the G-14 for that matter, would have an overreaching impact on the Turkish economy as well. Turkey, which has undergone considerable progress in its economic development in the last seven years, promoting the Turkish economy to the 17th largest in the world and sixth largest in Europe, has already paid a huge price because of the economic crisis triggered by the meltdown in the United States’ subprime mortgage market in 2007.

Against the backdrop of the shortcomings of the G-7 or the G-8 in dealing with the financial crisis of the late 1990s, the G-20 was created to support growth and development across the globe with the expectation that it would strengthen the international financial architecture by ensuring coordination among national as well as international institutions. Now going back to something lesser than the G-20 means we will lose the important contribution provided by emerging economies which had nothing to do with the latest crisis in the first place.

Let us recall. No financial institution went bankrupt in Turkey. While the European and US banks were posting huge losses on their balance sheets, Turkish banks were announcing profits in quarterly reports, albeit at a reduced level. Most financial and economic indicators proved to be relatively solid for a viable and vibrant economy in Turkey, in sharp contrast to many others. The Turkish Treasury has not encountered any difficulties in auctioning bonds in international markets at a rate almost similar to what it would have gotten from the International Monetary Fund (IMF). It looked very much like the economy has weathered the crisis without any IMF deal in place and now is in the process of recovery.

On the heels of the last G-20 meeting held in London, I had a chance to talk to Mehmet Şimşek, who was the economy minister then. He explained how Turkey had taken on a larger role in the maintenance of international financial stability with its membership in the newly created Financial Stability Board (FSB), a revamped and expanded version of the Financial Stability Forum (FSF), a global financial institution that was created after the 1997-98 Asian currency crisis to provide a venue for countries to discuss financial regulatory issues. “If Turkey and other emerging countries had a say in this forum before, we could have halted the deepening of the crisis,” he said.

Şimşek also said Erdoğan, who represented the country at the London G-20 summit in April, lobbied intensely for Turkey’s participation in the meetings of the G-8, which includes the major economic powers. The G-8 has in the past invited non-members as observers as well. We also know that Turkey sought to host the next G-20 meeting in İstanbul, but the timing coincided with the annual UN General Assembly in New York, and Pittsburgh, which was closer, was chosen instead. “Leaders thought it would be easier to convene the summit on the sidelines of the UN meeting, to which they had already committed,” Şimşek noted.

During the London summit, Turkey raised the issue of the lack of representation of developing countries in decision-making bodies. It floated reform proposals about the mandate, scope and governance of international institutions, including proposals that emerging economies have a greater say and representation in these institutions. In a nutshell, Turkey asked for a review of the leadership of the World Bank and the IMF, the latter has traditionally been headed by a European and the former by an American. Turkey stresses that appointments should be made through a transparent and merit-based selection process.

Another issue that needs to be tackled is that the dominant role of the US and Europe in IMF quotas, which is reflected in some of their policies, needs to be reformed as well in order to allow emerging economies such as Turkey to play a larger role. For instance, Turkey’s call to allocate more resources from IMF funds to help poor countries was received well. After all, Turkey partly finances the IMF’s holdings through its interest payments.

Turkey may very well enlist the support of other countries that would likely be left out if the G-14, rather than the G-20, takes the place of the G-8 in the near future. I remember taking special note when Australian Ambassador Peter Doyle invited me to a lunch at his residence to talk about how his country and Turkey can take common positions in G-20 meetings in a bid to better coordinate their national economies. In addition to these two, other countries that stand to lose are Indonesia, Saudi Arabia, South Korea and Argentina. Don’t forget, these six economies together command over $4 trillion of the world’s GDP.

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