The legacy of the Mexican presidency of the G-20

MEXICO CITY — The question of what the prevailing legacy would be of the 2012 Mexican presidency of the G-20, which is made up of the major economies of the world that account for some 80 percent of world trade, was the main inquiry I made last week while in Mexico City, where I conducted a dozen interviews with Mexican officials involved in both finance and the tracks of sherpas — leaders’ personal envoys. When Mexico holds the blockbuster summit event in Los Cabos on June 18-19, we will know more about this burning question, though the inquiry will not stop there as the presidency covers the whole year.

There are so many things that can be said for the upcoming summit, and as Mexican officials explained, too many issues have been brought to the agenda of the G-20. In fact, they do not hide the fact that Mexico deliberately raised the expectations, hoping to settle some of the most pertinent issues the world economy faces today, from growth to job creation and from the environment to food security. Though the official declaration listed only five priorities for the Mexican presidency, they have managed to bring up too many issues with side events and outreach activities, thereby creating a very ambitious agenda.

Of course, Mexican officials are not so naive as to think they will find solutions to all the illnesses of the world economy, especially among the very diverse and disparate group that is the G-20, the members of which represent both developed and emerging economies from different parts of the world. They could have gone the way they did in the UN Climate Change Conference that took place in the Mexican resort city of Cancun in December 2010, downplaying expectations in the lead-up to the conference. Instead, they have raised the bar for the G-20 summit, which must be a very calculated decision on their part to show, first and foremost, that they are willing to settle for far less.

There have been two important external developments that have overshadowed the Mexican presidency over which it unfortunately has no control whatsoever. One is the lingering crisis in the eurozone countries and the inability of the EU to come up with a strong response to soothe the markets. The situation has now developed from a sovereign debt crisis to a major confidence crisis that has claimed as a casualty the political stability in some European countries. We have seen the early signs of a possible risk of a run on banks in a major economy like Spain — it has happened in Greece already — and many banks in the eurozone may soon find themselves insolvent if urgent action is not taken by the EU. Mexico is worried that if Spain goes up in smoke, its national economy will be exposed to huge risks from the fallout. Therefore, Mexican officials are quite upset by the poor show of leadership — or lack thereof, for that matter — shown by the EU in this critical matter on the eve of the G-20 summit.

The second major development regards the increasing signs of protectionism in trade and the introduction of customs barriers among G-20 member states even though the members have committed in the past to avoiding the adoption of such measures. Of course, this is not something new or unique to the Mexican presidency but was a recurring phenomenon at the Cannes and Seoul summits as well. The fact that it has increased even more during the term served by Mexico, whose export-driven economy is dependent on free trade and open market access, has prompted further concerns among officials here in the Mexican capital. Adding insult to injury, two Latin American countries — Brazil and Argentina — blindsided Mexico, which is the first Latin American country to assume the presidency of the G-20, by introducing protectionist measures.

First, Mexico had to yield to pressure from Brazil to slash auto sales to the South American giant in March, fixing an export quota for the next three years to save a decade-old trade agreement between Latin America’s number two and number one economies, respectively. When asked, Mexican officials defended the deal by saying they had to postpone the quarrel for three years and hope to revisit the agreement in three years’ time. “Otherwise, we would be losing greatly,” one official at the Foreign Ministry said, adding that they were at least able to partially salvage the deal. The second blow came from Argentina, the third-largest economy in Latin America, when the country’s president, Cristina Fernandez, announced a decision in April to seize control of Argentina’s biggest oil firm, YPF, a subsidiary of Spain’s Repsol. Argentina has already started implementing restrictive measures in its import licensing regime by requiring companies to balance imports with exports.

All these problems, over which Mexico simply has little or no control at all, will surely be echoed at the G-20 summit when leaders meet in Los Cabos, and Russia will probably inherit a lot of them when it assumes the presidency from Mexico at the beginning of 2013. Enlisting the help of Turkey, another emerging economy in Europe despite the eurozone crisis, among others, is certainly an important goal of Mexico’s presidency for the successful conclusion of its term by year-end. It will help Mexico confront challenges that seem insurmountable at times given the lack of leadership at the G-20. For example, Lourdes Aranda Bezaury, the deputy foreign minister and Mexico’s sherpa for the summit, told me last week during an interview how she appreciated the help she had received from her counterpart, Mehmet T. Gücük, deputy undersecretary for economic affairs at the Turkish Foreign Ministry.

On many issues on how to best shape policies at the G-20, there is actually quite a convergence of interests between Turkey and Mexico. Just to name few, both are strong advocates of open and free markets, keen to see an enhanced role for developing countries at world financial institutions such as the International Monetary Fund (IMF) and the World Bank. Having implemented structural reforms far in advance of many developed countries, their fiscal and budgetary discipline is in much better shape. They want the G-20 to recognize and learn from the best practices that proved to work very well for them. At the same time, both Turkey and Mexico want to keep a comfortable growth rate that creates jobs without exposing the middle class, the backbone of their economies, to a high degree of risk from possible volatility in exchange rates, inflation or commodity prices.

Mexico also attaches great importance to improving the international financial structure, more specifically to boosting resources at the IMF for what is called the “global firewall” for emergency funds. Turkey is one of the co-chairs of a working group created exactly for the purpose of reforming world financial institutions. This could be one of the legacies of the Mexican presidency, as some members of the G-20 already announced a contribution of $430 billion to the IMF in April. Mexican officials are mum as to the final figure and have not shared their projections for the G-20 summit. But all depends on the US and Europe, the IMF’s dominant powers, to sign off on voting reforms agreed in 2010 and to accept further changes by January 2014. Mexico and Turkey, along with other emerging economies, strongly believe the time has come for a realignment of the powers in the world financial structure.

I’m sure many analysts will recall the Mexican presidency, whether or not it delivers on the promises made for IMF and World Bank reform, whether or not it adopts strong measures to insure growth and generate jobs in order to avoid a possible recession, keeping lending available at affordable rates while maintaining the integrity of banks. But, for me, the real legacy for Mexico will lie in the details of the “follow-up” mechanisms established to pursue all these goals and the establishment of benchmarks to measure the rate and degree of success on what is being called “deliverables” for the G-20 summit. In other words, the impact assessment of Mexico’s G-20 presidency will depend on the institutional capacity, be it formal or otherwise, to improve the situation on a set of goals announced either during the Mexican presidency or by past presidencies.

The creation of a task force on advocacy and impact for the first time under the business group B-20 may be a good example for a follow-up mechanism that includes defining a process to permanently track B-20 and G-20 recommendations. From the interviews I conducted, I did get the feeling that Mexican officials fully grasp the different maturities for the objectives set and they do understand that Mexico has to work with partners that are diverse and at times irreconcilable. But they are determined to hold partners accountable at the G-20 summit and beyond.

It looks like Mexico has already established its footprint on two important legacies for the presidency that is almost into its sixth month. For one, the G-20 presidency process proved to be a much more transparent process in contrast to the past, as the government published many discussion papers in advance and made them public. It has provided journalists with access to senior-level officials working on G-20 issues. Secondly, Mexico has already organized more comprehensive outreach activities than any other past presidency of the G-20 by including civil society organization, nongovernmental organizations, think tanks, youth, businesses and other stakeholders.

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