the Chinese authorities are betting on which on top of the dollar outstanding privilege might add one day that of the Yuan. One way or another finally it will be of the utmost importance to succeed in separating sometime the international currency from its own nationality, this step could even become one of the compulsory moves for the very start of the reform since it appears now so obviously that making a national currency the central linchpin of the IMS will lead sooner or later to the loss of control of the liquidity.

As for the recent avant-garde idea of Fred Bergsten and Daniel Gros to counterweigh the Chinese buying of American Treasuries by the American purchasing of Chinese financial assets in order to establish some virtuous reciprocity it clashes for the moment with a nullifying obstacle namely the strict control of the flows of capital into China. Furthermore recently even the proposal made by R. Zoellik, the President of the World Bank, to return to the gold standard—a fifty year old comeback into the limelight—has found a new life although the unstoppable bubble of the gold price would render its implementation hardly possible. Finally perhaps let us not forget to mention the approach suggested a long time ago to us by Robert Triffin after his reading one of our articles,<fnref n="23" /> the path leading to a multicurrency system called monetary “oligocentrism” ie one composed of a small number from the Greek “oligos” of international currencies (three or four with of course tomorrow the renminbi) which would fluctuate each one versus the others and whose weighed basket would be the cornerstone of the whole IMF while nonetheless the tricky problem of defining the central linchpin would remain.

As can be seen the formulas do exist and others can probably be conceived. Each one in turn has to be carefully weighed and examined, not with keeping an eye on the past, but on the contrary with focusing on the present difficulties without brushing aside the novelties or associations that might be imposed by China's march towards power, by the coming of age of emerging nations, by the American condition and eventually even the shaky euro situation. In short the work that lies ahead of us is enormous and a genuine launching window for an immediate reform of the IMF does not exist yet without at first a thorough effort of clarification. Does this mean we have to be discouraged and stop acting? This would be the worst possible reaction for on the contrary we must actively prepare the grounds

<footnote n="23">23. Henri Bourguinat (1981) "The European monetary system and the Dollar: diversification versus stability". Europe and the world-wide Disequilibrium, J.R Sargent ed Sijthoff et Noordhoff. Voir aussi du même auteur: *Finance Internationale, PUF (1995) et Dalloz (2008)*</footnote>
for a new Bretton Woods but in doing so within a reasonable span of time (two to three years) heading for the First World Conference of the 21st century starting with a precise agenda and a wealth of renewed proposals that would all have been studied in depth.
A NOTE ON THE INTERNATIONAL
MONETARY PROBLEM

Avinash PERSAUD

OECD

The problem with the debate on international macro-economic reform is that there are too many solutions in search of a problem. Quite apart from the fact that tinkering around with nominal exchange rates doesn't solve anything real, sustainable solutions can only be found when we have separated the real problems from those that merely sell well on political soap boxes.

In the field of international money there are three main problems to be solved.

The first is that every country bar one, is well incentivized to develop policies that are right and good for itself. It is with some irony that many anglo-saxon friends believe the one is China given the Chinese and Indian origins of what the Portuguese later called the "Mandarins". The one exception is the issuer of the world's reserve currency.

This country does not have a budget constraint like others. Goods and services can be paid for by IOUs never claimed upon. The US is the provider of the world's reserve currency today and the last time national spending was less than nation income was thirty years ago. Issuers of paper currencies held as reserves are prone to excessive debt-financed consumption that ultimately sinks the standard, drowning everyone else on it. Trying to constrain the hegemon, often in its own long-run interests, is the Syphusian goal of the rest of the world.

The second problem is that in the natural state of affairs, is a single reserve currency. This is because there are strong network effects. If one asset is known to offer liquidity and value in a crisis, it becomes a self-fulfilling prophecy that draws liquidity and value from all other assets. This concentration of world reserves into one asset, vulnerable to being
devalued, is risky for holders of the reserve assets, as the Chinese are observing today and as President De Gaul observed in 1970. Without sufficient vigilance by the monetary authorities of the reserve issuer, the concentration of international savings and its potential is able to fan the flames of an unsustainable boom in the issuing currency with potentially highly adverse consequences—as we have seen.

If half the world wants to spend and the other half wants to save, perhaps because they have a commodity windfall like Russia, Brazil and Saudi Arabia, or they are already investing a large amount of GDP or have an overhang from some past over-investment, as in China, where 50% of GDP is invested, or Japan and Korea, and these countries invest these savings internationally in countries that want to spend, is this not a measure of an international monetary system working well? The problem of global imbalances is not that imbalances exist, but that there is a concentration of spending and saving that is aggravated by a single reserve currency.

John Maynard Keynes was exercised by another problem, which is what would happen if the issuer of the world reserve currency was a surplus country as in 1940s America. This would be deflationary, but we have been saved that particular misfortune today. It is worth mentioning, however, as it was the background to his ideas around bancor, that are being re-floated today.

A solution to these real problems is often weighed down by genuine concerns over other legitimate problems that are best solved through other means than international monetary reform. These include the scourge of world poverty, the unconvertibility of some developing country currencies and the human and social consequences of adjusting to lost competitiveness. But if reform to the international monetary system appears artificial and “soft” they will not convince those charged with protecting their country’s financial balances and will be still born. The dustbin of history is choc-a-bloc with utopian currency ideas.

The solution would be for the IMF, or another treaty-based organization to issue a new currency, but not a basket currency or some grown up unit of account, not something handed out free to those with unconvertible currencies or anyone else, but something hard. The guardians of this hard currency would have as a primary objective to ensure that it would never systematically depreciate versus any of today's major currencies. It would not be backed by any paper currency, but by a basket of real assets, independently certified and income-producing, limited to world resources that are consumed by unsustainable economic expansion. Imagine a basket of sustainable forests and water resources. Reserve managers could be
charged with ensuring that investments in these assets were also globally diversified. By being convertible, marketable and with a remit to be strong, this currency would be an attractive store of value. By investing in income producing real assets it would be liquid and by being internationally diversified, we address the problems associated with concentration. The accumulation of reserve assets would not be financing an unsustainable asset-price boom in a narrow set of countries, or an income-sapping investment by others, but an investment in all of our futures.
<figure><img src="image_13.png" /></figure>
5. STRUCTURAL ISSUES

PRIORITIES FOR THE G20

CLIMATE CHANGE

Nicholas STERN – LSE, London

GLOBAL IMBALANCES

Yu YONGDING – IWEP, Beijing
<figure><img src="image_14.png" /></figure>
# PRIORITIES OF THE G20
CLIMATE CHANGE

Nicholas STERN

LSE

At the national level 2010 was a mixed year for progress on climate change: many developed countries hesitated, as in some of Europe, or stepped back as in the USA; on the other hand many developing countries moved forward as in China's 12th five-year plan, India's action on renewables and energy efficiency, and Brazil and Indonesia on forestry. At the international level, after the disappointment and acrimony of the UNFCCC meeting in Copenhagen in December 2009, the progress was largely positive; the consolidation of the Copenhagen Accord in terms of emissions commitments for 2020, the agreements in Nagoya in October at the Convention on Biodiversity and the agreement in Cancun at the UNFCCC (COP16) on climate change. The G20 Seoul summit in November was broadly positive, including, its welcoming of the work of the UN Secretary-General's advisory group on climate change financing. Business commitments have continued to move forward with rapid technical progress, investment in renewables, and further pressure on the political process to create a stronger and clearer policy environment, as in the G20 Business Summit in Seoul.

There is some momentum and a modest international platform for further progress in 2011, building to COP17 in Durban, South Africa at the end of the year. But, for progress to be major, strong leadership under the French Presidency of the G20 is required. For developed countries, whose attention has been diverted by the financial and economic crises this must include helping to overcome wavering commitment. For developing countries, it must include fostering the recognition that an alleged trade-off between reducing emissions and overcoming poverty is largely false. Both of these can be achieved if we focus on the understanding of three key issues; recognition of the necessary scale of adjustment; the attraction of
the new energy-industrial revolution that will be necessary; and the complementarity between action on climate change and resolving the international macro challenges of this coming decade.

1) World discussions have accepted the '2°C target', specifically understood as around a 50/50 chance of holding average world temperature increases relative to the mid 19th century to 2°C. **But they have not faced clearly and honestly the quantitative reductions which are required.** We must as a world, to achieve this target, reduce global emissions, which are currently around 48 billion tonnes of carbon-dioxide equivalent in 2010, to around 44 in 2020, well below 35 in 2030, and well below 20 in 2050: in other words from around 7 tonnes per capita now to around 2 in 2050. Or with a moderately growing world economy (say multiplying by a factor of 3 in 40 years) cutting emissions per unit of output by a factor of between 7 and 8. This means a new industrial revolution starting now. World leaders have not yet recognised fully these implications of the 2°C target. And they probably have not yet fully understood the magnitude of the risks of missing the target in terms of the significant probabilities of 3, 4 or 5°C by the end of the century, temperature increases (certainly in the case of 4 or 5°C) which would transform where many hundreds of millions can live. Without clear understanding of the necessary scale of adjustment, progress may be dangerously slowed. The G20 is the right forum for this clarity on the necessary economic and industrial transformation.

2) The politics, however, of embracing the necessary scale becomes much more attractive if we recognise that **the transition to a low-carbon economy will be full of creativity, innovation and growth. It is the growth story.** This is a narrative which must be set out, strongly and clearly at the most senior level. Past economic transformations, from the mechanisation of textile production in the 18th century, to steam and railways in the 19th century, to information technology in the 20th, have brought 2 or 3 decades of dynamic growth, with investment flowing to the pioneers. This technological transformation, with its necessity rooted in the huge market failure of unpriced greenhouse gas emissions, requires strong national and international policy.

Korea and China have seen this clearly. Indeed, in many ways, the most significant economic event of 2010 was the announcement of the outline of the 12th five-year plan for China (2011 – 2015). The two key themes are (a) the advance of the Chinese consumer and (b) the transition to a low-carbon economy. Seven sectors the ('magic seven') are targeted to grow from 3% to 15% of the economy by 2020 on top of an overall 8% growth rate. The industries are in large measure 'green tech' and the investment
will be phenomenal. Those countries and regions, we hope including Europe, that partner with China will see immense advantages. If Europe and East Asia move strongly, the external reality for the United States could change within a decade, in terms of damaging prospects for dirty exports and being left behind technologically. This could, in turn, intensify pressures for change in the internal politics of the USA. The OECD in Paris and the Global Green Growth Institute in Korea will be leaders in the analysis of this story. So too should be the IFIs. Europe has much to gain by strengthening its commitment from 20% to 30% reductions (1990-2020) and promoting technological collaboration with East Asia. It should not be put off by the siren calls of narrow short-term vested interests, and should embrace the more dynamic growth story. The green race has begun and the pioneers will have great advantages.

3) The big shorter-term international macro challenges of the next few years and this decade, must be examined in the context of this medium and longer-term story of the next industrial revolution and the transition to low-carbon growth. In this decade we must handle four related international macro issues: (i) major world savings and investment imbalances manifesting themselves in trade imbalances, (ii) very large deficits and debts in the public finances of key countries (iii) fragile growth, particularly in the richer countries and (iv) unfinished business in financial and capital market reform. All of these will be easier to handle, not more difficult, if we set them in the context of the two profound structural changes of the next 2 or 3 decades: the transition to the low-carbon economy; and the re-drawing of the international division of labour—the movement of low-cost manufacturing out of the rich countries was just a beginning.

The G20 is surely the place where these shorter-term macro challenges can and must be integrated with longer-term structural change. We damage both the shorter and longer-term if we separate them out. In this case the strong investment in low-carbon infrastructure and new technologies should be at the heart of the economic recovery in the rich world and of the structure of growth in the developing world.

If there is leadership in the G20 on the three key issues identified at the start of this note, then the creation of the necessary coalitions to tackle the challenges of (a) international macro-management, (b) overcoming poverty and promoting international development and (c) managing climate change, will be much more likely. The G20 is the place where the integration of action on these challenges can and must be put together. We damage the prospects for action if we separate our responses to these challenges. In this context key areas for action in 2011 are taking forward
the recommendations of the UN Secretary General's advisory group on climate finance and implementing the Seoul development consensus and action plan.

We must simultaneously foster local and national action and collaborate to create an international agreement on climate change. There is no contradiction in this sense between bottom-up and top-down. On the contrary they support each other. And we need not be excessively formal in the notion of a 'binding agreement'. The key is confidence in where other countries are going, so that in domestic politics people feel part of a bigger story and in business, investors see growing markets for the new technologies and serious risk in the old high-carbon methods. Understanding the economies and policies of other countries is of fundamental importance. China's 12th five-year plan is a good place to start. It is a much clearer commitment to a low-carbon future, essentially a contract between China's government and its own people, than, say, Canada's signature on the supposedly 'binding' Kyoto international agreement.
GLOBAL IMBALANCES

Yu YONGDING

IWEP & Beijing

Global recovery is underway. But the prospects of the global economy are not encouraging. First, in the long-term run, the potential growth rate of developed economies will be low, due to a slower growth rate of working age-population and the likely stagnant in labor productivity. Second, fiscal positions of almost all developed countries are worsening rapidly. Now total global debt stands at 41 trillion US dollar, a 24 percent rise from 33 trillion US dollar in 2009. These two facts imply that a global sovereign debt crisis is looming large in the future.

Before the subprime crisis struck in 2007, most economists would agree that global imbalances were the most important threat to global growth. It was commonly theorized that the rise of the net foreign debt-to-GDP ratio (NIIP/GDP ratio) of the US, as a result of the accumulation of current account deficits, would lead to a sudden stop of capital inflows, which in turn would lead to a fall in the dollar and a rise in the interest rates, and hence a crisis of the US economy. However, the scenario failed to materialize. Instead of an international balance payments crisis, the subprime crisis broke out. Why did most economists fail to predict the economic dynamics that actually led to the crisis correctly? The reason is that most economists failed to pay enough attention to the rapid increase in total debt and all its major components, and only narrowly focused on just one component of total debt-- foreign debt and the change in the foreign debt –current account deficit. Foreign debt is a result of deficiency of domestic funds for the finance of total debt. It should not occupy a too special attention in comparison with other forms of indebtedness. In fact, while the net foreign debt-to-GDP ratio was 24 percent in 2007, the magnitudes of other major debts were way larger (Figure 1).
<figure><img src="image_15.png" /><figcaption>Figure 1: Total US Debt (% of GDP)</figcaption></figure>

Source: Sterling Stamos analysis; Federal Reserve

*In the following discussion we define Total debt = Household debt + Public debt + Business debt.* Here financial debt is excluded from total debt to prevent double

In Q3 of 2008, the US total debt-to-GDP ratio has surpassed 358 percent. More specifically, the three components of total debt are mortgage and consumer debt, government debt, and non-financial corporate debt. Debt must be financed. (See appendix)

For any debt positions such as foreign debt, mortgage debt, public debt and business debt, there are problems of sustainability, individually. The sustainability of debt means not only total debt but also each component can be financed continuously. While different debts have different natures, all debts and their finance are interconnected. Troubles in any component of total debt will impact on the other components. For example, the subprime crisis has changed the dynamics of America's current account deficit, leading to a temporary improvement in the account. The public sector leveraging in 2009 aimed at preventing further slowdown of the economy caused by the collapse of the mortgage debt market has led to the rapid worsening of America's public debt position.

It can be seen that the net foreign debt is the difference between US total debt and US total assets (plus equity). Correspondingly, American current account deficit is equivalent to the deficiency of funds for financing US household debt, government debt and corporate debt.

Hence, the problem of global imbalances, which is characterized by the US current account deficit vis-à-vis current account surplus of the rest of the world, is just part of the problem of the funding deficiency of US total debt. The funding deficiency can be divided into four interconnected
components, which deserve equal attention: *funding deficiency of households, funding deficiency of the government, funding deficiency of nonfinancial corporate and funding deficiency of a country*. In a closed economy, the funding deficiency of one or two sectors must be supplemented by other one or two sectors with funding surplus. In an open economy, foreign funds can flow in to make up the funding deficiency of the country.

When the sustainability of US current account deficit is discussed, the focus is on the sustainable level of the US net foreign debt-to-GDP ratio. Though it is easy to decide the steady state of the net foreign debt-to-GDP ratio under given assumptions, it is very hard to decide at what level the net foreign debt-to-GDP ratio will become unsustainable. The net foreign debt-to-GDP ratio is not a good measurement of the sustainability of US current account deficit, because, for foreign creditors, the most important and direct concern is the safety of and returns on the particular US assets they have invested in, rather than the repayment ability of the country as a whole. The reason why the expected crisis caused by global imbalances failed to materialize is that, despite the high net foreign debt-to-GDP ratio, foreign demand for US financial assets, especially US government securities was still very strong. For example, for Chinese investors (the Central Bank), the main concern is with the safety of and return on US government securities. As long as the US dollar will not fall significantly, the worsening of America's external position will not become a major concern for foreign investors. With hindsight, economists should have paid more attention to the sustainability of US domestic debt, especially mortgage debt. The mistake can be seen more clearly, if we notice that the mortgage and consumer debt-to-GDP ratio in 2007 was more than 83 percent, compared with the 24 percent of the net foreign debt-to-GDP ratio. The break out of the subprime crisis and its aftermath show that overextension of mortgage debt relative to incomes of borrowers (NINJA) made US mortgage and consumer debt unsustainable. As prices of MBS and CDO fell dramatically, mortgage debts were unable to roll-over, and a vicious cycle set in. The deleveraging by financial institutions made the funding deficiency worse. Without government intervention, interest rates on mortgages and other financial assets would rise dramatically, the US dollar probably would fall, and defaults would be prevalent, until a new equilibrium was found. The global financial crisis was caused by over-indebtedness. Any long-term and fundamental solution must deal with the over-indebtedness issue. However, to bring total debt down to a sustainable position, high costs must be paid. Mortgage and consumer debt can be paid down by households with their savings or by default of borrowers. In the former
case, more savings (less consumption) may lead to a fall in effective
demand and hence a slowdown of economic growth (a rise in
unemployment). In the latter case, the creditors would incur huge losses
and the economic may fall into a deeper recession. The US government has
chosen a politically easier solution. By schemes such as TALF, TARP and
QE1, prices of "toxic assets" were artificially prompted up. In other words,
funds escaped from the mortgage and consumer debt market were offset by
funds pumping in by the government. Private creditors were replaced by
the government and risks were shifted from private creditors into tax
payers in general. The issue of fairness aside, the government intervention
in the mortgage and consumer debt has led to a dramatic increase in public
debt. Where will funds come from to finance the increased public debt?
There are three possible sources: *funds released from the mortgage and
consumer debt market, new domestic funds resulted from higher household
savings, and foreign funds*. The rapid increase in the supply of public debt
will become a serious threat to the sustainability of public, unless
household savings can increase correspondingly. Now while the balance of
household debt has been restored at a knife edge, the sustainability of
public debt is becoming a new flash point of global financial instability.
The QE II is outright money printing and cannot be regarded as normal
open market operations. The launch of the QEII shows that financial
markets are no longer able to provide funds—loanable funds to finance US
government budget deficit. QEII is an action of desperation.

By the end of 2010, US public debt is above 14 trillion USD (Figure 2). The public debt-to-GDP ratio is more than 90 percent and it is forecasted that by the end of 2020, interest payment on government debt will be more than 30 percent of government revenues. The issue of sustainability of US public debt seems a more serious problem than that of US current account deficit.

If the US private sector is not in a position to provide surplus funds to
satisfy the need for financing public debt, the only possible source of
finance is foreign funds. However, this means that the US must tolerate
current account deficit. Otherwise, virtually there will be no way for the US
to get enough funds to prevent a crash in the public debt market.
Unfortunately, the European Sovereign Debt Crisis is far from over. Only
feasible source of funds is emerging economies, especially China and oil
producing countries. If foreign funds stop flowing into the US government
bond market, and/or other capital markets to release domestic funds to
supplement the government bond market, a public debt crisis may be
inevitable. Tricks such as QEII can buy time but will not solve the problem.
From the point of view of China, it is difficult to understand why the
Chinese government should be so reluctant to reduce its current account
surplus against the US, meaning insistent to buy US government securities, while the securities are facing the danger of down-grading. From the point of view of the US, it is even more difficult to understand why the US government has been so intransigent in demanding China to reduce its current account surplus against the US, while it needs foreign funds to finance its budget deficit badly.

<figure><img src="image_16.png" /><figcaption>Figure 2. US government Debt</figcaption></figure>

Source: U.S. National Debt Clock
http://www.brillig.com/debt_clock/
Although, the problem of global imbalances should be looked at within a broader framework, which takes into consideration total debt and total assets, and all major debt-finance links, the sustainability of global imbalances is still an important issue. Definitely, sooner or later, China will cut its current account deficit in a more earnest manner, because consensus has begun to arrive at recently that it is not in the interest of China to continue to pile up foreign exchange reserves by buying more US government securities, the value of which has already been diluted by the Fed's pump-priming. If the US government fails to find a way to cut its total debt, the fall in prices of US government bonds and the rise of the yields on these bonds will be inevitable.

The US needs both financial stability and growth. To achieve one should not at the expense of another. A sudden stop due to worsening of current account deficit is not an immediate threat. Until the US government and Fed have sold those toxic assets without causing upheaval in the capital market, we cannot say that the problem of household debt has been solved. Public debt has been worsening fast. The debt problem can be solved basically in two ways: the hard way—default and the soft way—pay down the debt by savings. There are two ways to increase savings: reduce consumption and make the economy growth faster. From America's point of view, it seems that the idea solution is to achieve higher growth by increasing exports. Suppose that by devaluation of the US dollar vis-à-vis the RMB, US current account deficit falls to zero, which, other things being equal, implies that the US economy grows correspondingly. Growth of the economy should increase government tax revenues, and hence the public borrowing requirements will be reduced. The need for foreign funds to finance budget deficit will be reduced at the same time. In this process, both current account deficit and government deficit will be reduced. This means that the growth rate of total debt has been reduced, while economic growth has also been achieved. The flip-side of the scenario is the weakening of the position of the dollar as the international reserve currency, and the possible negative impacts of the devaluation of the dollar on the rest of the global economy.

To allow the US to achieve a smooth adjustment by reducing total debt (or lower the growth rate of total debt) and increasing exports, international coordination is needed. On the other hand, US policies should be conducive to the maintenance of growth in developing economies and guarantee the integrity of the dollar. This means that the US should resist the temptation to inflate away its debt burden and shifting the burden of adjustment to the rest of the world.
The proposal of committing to reducing current account surplus by surplus countries is worth considering. However, this commitment must be combined with other commitments such as reducing budget deficit, reducing total debt-to-GDP ratio, controlling over operation of print press and so on. The coordination should be aimed at maintaining the growth momentum of the global economy, maintaining the financial stability and distributing the burden of adjustment in a fair way.

# Appendix

Total debt must be equal to total assets +equity. But total debt is not necessary equal to its domestic assets +equity. Taking into consideration foreign claims on the US, we have the following relationship.

Mortgages and consumer credits of American households +American public debt + American business debt = MBS, CDO and other assets, US government securities, corporate stocks and bonds, held by Americans + [(foreign Miscellaneous Assets, US government securities, other bonds, corporate stocks, held by Americans, and outbound FDI) – (MBS, CDO and other assets, US government securities, corporate stocks and bonds, held by foreigners, and inbound FDI)]

## Equivalently, we have

Net foreign debt = (mortgages and consumer credits of American households – MBS, CDO and deposits, held by American) + (American public debt – US government securities, held by Americans) + (American business debt – corporate stocks and bonds and deposits, held by Americans)

## In flow terms, we have

Current account deficit = Δ(mortgages and consumer credits of American households – MBS)ΔCDO and consumer bank loans, held by Americans) + Δ(American public debt- government bonds held by Americans) + Δ(American business debt – shares and corporate bonds and business bank loans, held by Americans)
<figure><img src="image_17.png" /></figure>
# 6. THE DEVELOPMENT AGENDA

## DEVELOPMENT ASSISTANCE AT A TURNING POINT

François BOURGUIGNON — Paris School of Economics

## PROPOSAL FOR AN AID MODEL

James MIRRLEES — Chinese University of Hong Kong
& Trinity College, Cambridge
<figure><img src="image_18.png" /></figure>
# DEVELOPMENT ASSISTANCE AT A TURNING POINT

François BOURGUIGNON

Paris School of Economics

Very much criticism has been heard lately about Official Development Assistance by developed countries to developing countries. It is often seen as ineffective in promoting growth and reducing poverty. Even when restricted to social objectives like education or health, it is also found to be counterproductive through encouraging corruption and lack of accountability of political leadership with respect to their constituency, or even foreign donors. At the same time, it is difficult to imagine how a number of low-income countries would do in providing basic social services to their population without existing foreign assistance and how they could invest more heavily in infrastructure to promote faster growth without an increase in foreign assistance.

Development assistance is today at a turning point. If it makes little doubt that it needs to be increased overall, several factors suggest that the old model of aid delivery by a few official donors must be seriously revised to avoid it becoming still less effective.

Among the factors that push for a drastic change are the following.

**The 'new' donors.** Reflecting the asymmetry of economic growth in the developing world, the so-called emerging countries are increasingly present in poorer countries, most importantly in Sub-Saharan Africa. In a few years, China has been able to increase its funding of African development from practically zero to maybe 5 or $6 billion a year. The new donors often operate in the 'old' diplomacy-related style but they deliver aid in sectors and in ways radically different from those used by traditional donors, possibly making the latter less attractive and comparatively less effective. A good example of this is the focus of Chinese aid on infrastructure—an area long abandoned by traditional donors.
**The aid fatigue in traditional donor countries.** Aid being seen as ineffective, constituencies in donor countries can hardly be convinced to increase their effort, especially at a time of an economic slowdown. Moreover, observing how the new donors operate creates pressure to revert to old diplomacy-related aid model and away from multilateralism and restrictive DAC rules.

**The growing sense of sovereignty and the increasing expertise in beneficiary countries** are sapping further the old conditionality based aid model. Yet, aid cannot be exclusively delivered under the form of budget support, especially in 'fragile' countries.

**The multiplication of aid actors.** Because of some lack of transparency in multilateral agencies as well as the fear of corruption in beneficiary countries, several specialized multilateral funds have recently developed (GAVI, HIV/Malaria, ...) in addition to existing specialized UN agencies. An increasing number of NGOs operate in the aid area funded both by private and public donors. Philanthropic foundations like the Gates and Buffet foundation are also increasingly active. The total amount of funds channeled towards developing countries by these 'private' actors was recently estimated to be around $50 billion a year, 40 per cent of total DAC aid. The increasing number of aid actors makes problems of coordination and harmonization, already serious among traditional donors, still more acute and potentially harmful to effectiveness.

**Financial development.** Globalization and innovation have substantially increased international flows in development finance with the effect of reducing the relative importance of aid flows, even in countries with limited access to international capital markets. This leads some observers to anticipate that private flows can progressively substitute for ODA. It is to be hoped that, together with more domestic resources, this will indeed happen in the long-run. For the time being, however, the issue is how to best combine the two types of flows while taking into account the relative role of private and public actors in development.

**New tools.** Innovations have taken place that may greatly modify the way to assist people in low income countries. Cash transfer policies of different types (conditional on the schooling of children, lump-sum pensions, etc..) can be effectively implemented today at relatively low cost thanks to the development of smart cards and mobile phones. Person to person transfers between developed and developing countries, including migrant remittances, become possible through these tools and internet. At the aggregate level, regular flows of foreign funds, including foreign aid, may be leveraged to increase the volume of investible resources, possibly
modifying the way aid may be used. The delivery of development assistance must take into account all these changes.

**The focus on Sub-Saharan Africa and other poor countries.** Although some progress has been recorded over the last decade in the pace of Sub-Saharan African growth, the region still lags behind most other developing countries both in income levels and rates of growth. With current trends, global poverty will increasingly become an African problem over the next 20 years. On the other hand, it is not clear that the good performance of African countries over the last couple of years reflects on average more than favorable commodity prices and that commodity exports could be a powerful long-run development engine. Under these conditions, development assistance should increasingly focus on that region. It should also go beyond standard aid to cover other ways of creating the conditions for sustained development there (most notably through effective trade preferences).

**Climate change and global public goods** are opening new opportunities or new obligations to foreign development assistance. The anticipation that global warming will predominantly affect negatively the poorest countries has led to a reflection on how to mobilize resources to finance *adaptation* to the climate change. The High-Level Advisory Group on Climate Change Financing just released a report on how to mobilize $ 100 billion/year by 2020. An important issue is how to make sure that this funding will be truly *additional* and will not affect ODA flows. The same applies to other global public goods or 'global public goods' likely to affect poor countries: conflict prevention, trade infrastructure, pandemics prevention, etc... Globalization entails the development of global negative externalities that may hinder the economic development of poor countries. It is essential for them to be fully compensated without implicit reduction of ODA flows.

Such are the challenges that traditional and new ODA, whether public or private, is facing. Clearly, the old model of a few donors and a few bilateral or multilateral agencies financing specific projects or sectoral programs in developing countries fits less and less well this context. Yet, 'project aid' still is the dominant form of aid delivery today, both by public agencies as well as NGOs or private foundations. The major risk that is being faced with the present organization (or disorganization) of aid is an increase in its effectiveness for lack of coordination of the various actors, both in donor and in recipient countries. From that point of view, it is somewhat surprising that rather little was said in the Seoul Development Consensus promoted at the G20 summit in Korea about the implementation of the general strategic principles listed in the communiqué. There definitely is an
agreement on these principles and on the 'key pillars' proposed in the communiqué. But the issue of implementation and the best way of federating all the energies to reach the development goals reiterated in that document has received little attention. The decisions taken in previous conferences on aid effectiveness in Paris and Accra were too general, mostly focused on traditional donors and old aid delivery mechanisms and ignorant of the new context and new challenges to aid delivery.

The whole traditional aid system has become too complicated, involving too many actors and too many dimensions to be handled through conventional planning and coordination tools. It is necessary to think about innovative ways of handling aid in order not to lose and possibly gain effectiveness. Beyond principles, it should be the task of the G20 to propose ways to reach that objective, especially in view of the conference on aid to take place at the end of the year in Korea. From that point of view, a few practical and inter-related principles might be kept in mind for designing an adequate and effective aid system.

**Transparency** should be the master word. Aid is presently ineffective (or is perceived so) precisely because of the lack of transparency of the whole system. If all donors were transparent about the way their aid is allocated among countries, and possibly among sectors, if serious *impact evaluation* was undertaken of all specific projects or programs supposedly funded by foreign assistance, if recipient countries were transparent about their public expenditures, including those funded by foreign assistance, if they were seriously monitoring their development progress and the effectiveness of their own policies, again through rigorous impact evaluations of some of their major programs, things would be fundamentally different from what they are today. Transparency would reveal ineffectiveness and ineffectiveness would be corrected, in donor countries because of tax payers' pressure, recipient countries because of popular control and the risk that aid flows would fall if effectiveness is seen to be limited.

## Relying more on budget support

Provided it is possible to get real transparency in recipient countries, then budget support rather than project aid must become the norm. The problems arising from the lack of coordination of aid actors and lack of harmonization of their modus operandi will be reduced in the same proportion as the increase in the share of budget support in total aid. Also, actors concerned with these problems will increasingly be private actors, supposedly more flexible in their operations. In Sub-Saharan Africa, budget
support may represent about 20 per cent of DAC reported aid, but much less as a proportion of total aid.

## Decentralization to specialized (public or private) agencies

Outside budget support, it is not clear that national development agencies are the most efficient instruments to directly manage project or program aid when dealing with a multiplicity of countries and project types. Specialized agencies, whether public or private, would certainly do much better and this may be a reason for the relative good performance of various UN agencies or global funds. Project aid delivery already works a little as a market where operators specialized in a given field and a given set of countries collect aid from donors and are responsible for the implementation of a specific project. Provided that these operators are fully transparent, it would be possible to go beyond this, however. Operators could be managing their own projects, using the most efficient tools available and designing innovative ones, and would attract more or less aid from donors depending on the results they have been able to show through careful evaluation of their operations. In effect, private aid is more or less managed in that way. The problem is that it may not be extremely effective because money is not collected on the basis of a rigorous evaluation of the action of operators but through advertisement campaigns. One could even imagine that operators would be rated by some entity representing the community of public and private donors.

## Division of labor

The preceding principles (budget support, decentralization) already rely on a clearer division of labor in aid delivery. Addressing some of the challenges above also requires making sure the adequate allocation of aid funds across areas of interventions (global public goods vs. development objectives) and geographical areas (Sub-Saharan Africa and other poor slow-growing countries vs. other regions). It will probably be difficult to achieve this through loose coordination of donors. Part of the solution consists of entrusting part of this allocation process to multilateral institutions specialized in financing actions in given areas or regions (like Regional Development Banks). For global public goods, this will probably require either creating new institutions or delegating the management of a specific area – e.g. adaptation to global warming – to existing multilateral institutions like the World Bank or the IMF.

These principles are indicative of directions for in depth reflection on the necessary reforms of the aid sector. It might be thought that the
multiplicity of actors that was emphasized above is making things extremely complicated. This is not completely true. Traditional DAC donors are still responsible for two thirds of total development assistance in the world. Reforming the way they manage and deliver their aid would necessarily have a huge impact at the global level and will affect the way in which other donors, public or private, operate. In effect, it is most likely that other actors will join. In particular, nothing should prevent emerging countries in the G20 to join traditional donors on specific reforms or to adopt some of the previous practical principles.
# PROPOSAL FOR AN AID MODEL

James MIRRLEES

Chinese University of Hong Kong &
Trinity College, Cambridge<fnref n="24" />

In 2000, the nations of the world adopted the UN Millennium Development Goals (MDGs); which include the reduction of extreme poverty, disease, child mortality, climate change and gender inequalities, and the improvement of primary education and maternal health. The MDGs are the only credible framework for the international community's response to these problems.

The MDG programme needs funds. The 192 UN member governments backed these goals. The developed nations pledged to raise their aid to the developing nations to 0.7 per cent. of their national incomes to meet the need. Only five of them have so far reached this target. Most contribute less than half the pledged level. In 2009, the shortfall was $146B, roughly 56%. If the promised contributions to achieving the MDGs are not achieved, there will be greater human misery and global insecurity. The MM Aid Model provides a way for Nations to move faster toward meeting this funding shortfall.

## The MM Model - Transforming Aid

### Matching private donations

Donations can be increased both by greater public awareness of the good done by fulfilling the commitments of the MDGs; and by increasing the incentive to make donations. We propose that governments use part of their overseas development assistance (ODA) budgets to match private

<footnote n="24">24. This note is an abbreviated statement of a proposal that Renu Mehta (Director of Fortune Forum, London) and I have developed.</footnote>
voluntary donations. From the individual's point of view, a donation would achieve twice as much as the donation on its own, considerably increasing the incentive to donate. These private contributions, along with the matching public funds, would be channelled through to a special fund, to be set up by government or the government aid agency. We call this fund the Global Development Fund (GDF). Matching would be conveniently achieved for most people by allowing them to make voluntary donations to the GDF along with their tax payments.

Every donation made to the GDF by a private individual, a foundation or trust, or a company should be matched by an equal contribution from the government's aid budget earmarked for matching; a part that, in the absence of the scheme, would have gone to government aid agencies directly and unconditionally. Donations to the GDF can be made along with income-tax payments and corporation tax payments, and may take the form of legacies. Donations may be made by non-domiciled and non-resident income earners, and from accumulated wealth, including funds held offshore. Funds to match private donations would come from the aid budget: a substantial part of the budget would be so used.

Tax payers would be invited to donate at least 0.7 per cent of their taxable income. That amount would be collected with their tax payments, unless they chose to opt out, or chose a different level of donation. This proportion echoes the commitment to increase government development assistance to 0.7 per cent of GDP. Businesses would similarly be invited to donate a minimum of 0.7 per cent of their net trading profits. We would expect many higher income earners and businesses to donate a greater proportion than 0.7 per cent.

If implemented by all OECD nations the model should bring in new money of more than US$100 billion per year. To achieve such a high level of additional donations, all OECD member states would have to implement various aspects of the MM Model such as additional monitoring of funds and specialist donor support. An exceptional matching incentive alone will not work—Governments have to accept an independent evaluation process.

### Achieving and demonstrating successful aid

The GDF, in association with the government's development agency, needs to do a serious job of allocating its funds. It must establish rigorous monitoring arrangements to provide appropriate incentives for the governments, agencies and Non-Governmental Organizations (NGOs) receiving its funds to act and cooperate effectively. It should counter the inefficient use of development assistance, and reduce losses to wasteful
administration and corruption, which are among the reasons why
donations to these causes are so much less than their importance requires.

To increase donor motivation largely depends on the creation of this
specialist investment vehicle, GDF, designed to ensure that the donors'
resources are delivered with the highest possible impact. We suggest that a
GDF index of independently-audited projects and initiatives should rank
aid expenditures by their impact and results. That would provide a
competitive environment amongst grantees. It would reward good
performance, improve or eliminate inefficient programmes, and facilitate
better coordination of aid efforts. The result would be a higher yielding
portfolio of development programmes. The GDF would have two tasks of
the first importance, to assess performance and to inform public
perceptions.

* Transparency to build public confidence

The GDF would have the responsibility of monitoring the effectiveness of its expenditures, and publicising achievements, to show that the donors' performance expectations are met, and communication with the private sector. By doubling donations, and channelling them through a trusted body, we seek to create a large multiplier effect to attract donations from the private sector. Donors are to be given good information about development programmes they have financed through the GDF, information that should be publicly and transparently available.

Donors contributing through the GDF can be confident that their giving will be channelled successfully, because of the GDF's independent audit of the whole distribution process, from the criteria driving allocation of funds across the eight MDGs through to assessment of the effectiveness of proposed recipients, and subsequent evaluation of results obtained.

Spending to achieve the Millennium Development Goals, which can be
greatly increased by the MM Model, would give the world's poor access to
food, shelter, education, water, healthcare, a cleaner environment and
greater equality; and protect future populations from the risk of excessive
global warming. It deserves the highest priority.
<figure><img src="image_19.png" /></figure>
# 7. CROSS-CUTTING ISSUES

**GLOBAL GOVERNANCE, THE NTERNATIONAL MONETARY SYSTEM AND THE DEVELOPMENT AGENDA**

Venugopal Y. REDDY – LSE

**THE G20 PROCESS, THE INTERNATIONAL MONETARY SYSTEM AND MACROECONOMIC STABILITY**

Eisuke SAKAKIBARA – Aoyama Gakuin University

**SUSTAINABLE FINANCING FOR DEVELOPMENT**

Heidmarie WIECZOREK-ZEUL – Bundestag
<figure><img src="image_20.png" /></figure>
GLOBAL GOVERNANCE, THE
INTERNATIONAL MONETARY SYSTEM AND
THE DEVELOPMENT AGENDA

Venugopal Y. REDDY

LSE

**Global Governance**

G20 should not supplant existing multilateral institutions since they have universal membership, accumulated expertise and insights. The G20 can only supplement the working of these institutions and provide overall guidance as appropriate.

G20 should not, therefore, have a separate permanent secretariat. Informality is its strength and, therefore, its deliberations and outcomes should not be driven by own secretariat.

The current mechanism of working groups on an adhoc basis also provides a greater sense of participation to different countries, depending on their stakes and their relevance. For instance, it is not an accident that India and Canada are closely involved in some of the critical working groups.

Moreover, it must be recognized that G20's importance has been basically contextual and perhaps rightly so. When there are challenges, there is a greater compulsion to coordinate. When there are more normal times, all the institutions that have been established for specific purposes should have the policy space to conduct their activities as per their mandate. It is recognized that there is a deficit in the governance of many of these institutions. However, it is natural that the importance of G20 will diminish, and should diminish, as and when the governance in these institutions like IMF and World Bank improves.

Global Economic Coordination Council has a logic of its own, and it should be pursued vigorously as an independent body of experts. It would
be appropriate for G20 also to draw on the expertise of the proposed Global Economic Coordination Council.

Briefly stated, G20 should be treated as a group of systemically important countries which will deliberate on mechanisms by which the conflicts between the policy space necessary for national governments which are accountable to people and the normal global arrangements are resolved; and, this is best done through dialogue and peer pressure. G20 should have the liberty to draw on experts including, in particular, Global Economic Coordination Council, apart from IMF and World Bank.

However, it is necessary to ensure that G20 considers formally and seriously the Report of the UN Commission of Experts, and takes a view on its recommendations.

In the light of the above, the review of the existing institutions should be considered institution-wise, and with reference to weaknesses. In a way, reform has to be incremental, but urgent and significant.

My views on the G20 have been articulated in my recent book titled "Global Crisis, Recession and Uneven Recovery", in Chapter 20 (G20 Framework: Review and Prospects). Soft copy is attached.

## Reforming the Monetary and Financial System

On the global reserve system, the longer term goal should be a global currency. In the meantime, every effort should be made to make SDR popular, while the multi polar reserve currency appears inevitable in the short run, with U.S. Dollar continuing to be dominant but possibly less than before.

However, it may be useful to note that the real issue is not demand due to forex reserves of governments, because it is possible for major reserve currency holders to agree to mimick the currency composition of SDR in their reserve management.

In regard to the financial sector regulation, the major issue is the cross border activities of the financial conglomerates and the cross border flows. This area has been entirely neglected by the current discussions.

The utilization of regulation of financial sector for financial stability is emphasized, but not for promoting growth. This imbalance should be rectified by focusing on instruments of regulatory policies that can facilitate growth, including, in particular, employment and financial inclusion.
Taxing financial sector should be on the national agenda, particularly to avoid excessive financialisation and distorted incentives. Global agreement on taxation can be independently pursued.

## Macroeconomic and Stability Issues

In analyzing the macroeconomic and stability issues, it must be recognized that growth and stability are essentially the subject matters of elected governments at the national level, since they are accountable to their people. All global institutions are in the nature of arrangements between the national governments. Hence, any approach to the global macro economic and stability issues should focus on the spill-over effects of national policies on the global economy, and in particular, spill over effects of those countries which are issuing reserve currencies and those countries which are contributing to global economic imbalances.

In this regard, the importance of Euro Area should be recognized by the global community and it should be supported in resolving what has been eloquently described as “Policy trilemmas”. Euro Area has the potential to contribute immensely to the global architecture and governance reform.

## The Development Agenda

In analyzing the issues relating to development, particularly of developing economies, the follow basic issues may be addressed.

- First, globalization of finance is different from globalization of trade.

- Second, financial markets are different from the markets in goods.

- Third, banks among financial institutions are different and are in the nature of public utilities.

- Fourth, some financial instruments are good and some others are toxic. The burden of proof that they are not toxic should be on the markets.

- Fifth, the depositors' interest and savers' interest should be supreme because in the final analysis, growth has to be funded essentially by domestic savings and foreign savings are only a supplement.

The most critical issue for developing countries in the near to medium-term relates to volatilities and uncertainties in the financial markets. In addition, the huge demands of public debt by the advanced economies on the global savings and their budget constraints affecting aid flows could cumulatively create a stress on the assured availability of both private and public sector capital flows to the developing world. Some firm assurances to provide comfort in this regard may be essential for many of the low income countries.
<figure><img src="image_21.png" /></figure>
# THE G20 PROCESS, THE INTERNATIONAL MONETARY SYSTEM AND MACROECONOMIC STABILITY

Eisuke SAKAKIBARA

Aoyama Gakuin University

## International monetary and financial system

### (i) New Breton wood Conference

Several key countries' (U.S, Europe, Japan, China, India) representatives should be convened to discuss a new system of international monetary regime. U.S. dollar would continue to be the major transaction currency but some mechanism needs to be created to strengthen smooth transactions. Additional increase in SDR allocation with substantial quantity should be one of the measures to be implemented.

### (ii) Dollar vs. Asian Currencies

Given relative economic conditions between U.S. and Asian countries, the U.S. dollar would continue to decline vis-à-vis Asian currency including Chinese Yuan and Japanese Yen. Discussions among countries concerned should be held to smooth out the process. In particular, confrontation between U.S. and China over currency issues should be avoided as much as possible.

## G20 Process

Inner circle of G20 should be created to make discussions and deliberation more effective. Core members should be five to six. Members could form five to six groups and representation for the group could be on rotating basis. A secretariat should be created that serves for five years or so and the secretariat should be selected from aforementioned five to six groups. After the first five years, the secretariat should change. The
secretariat should get in touch with the IMF, the World Bank and the WTO to obtain their support.

## Macroeconomic and stability issues

(i) A new forum could be created to coordinate monetary and forex policies. In particular, a tripartite forum among U.S, Europe and Japan should meet and discuss regularly to avoid competitive monetary easing and currency war.

(ii) IMF consultations with developed countries could be held more frequently, say, a few times a year and on the basis of such consultations, meetings among developed countries, U.S, Europe and Japan should be convened.

(iii) Also, meeting with China and India with developed countries could be held regularly with IMF as the secretariat.
SUSTAINABLE FINANCING FOR
DEVELOPMENT

Heidmarie WIECZOREK-ZEUL

Bundestag

In the year 2000, the international community agreed the Millennium Development Goals (MDG), a set of fundamental, binding goals for a sustainable and equitable development policy. The Millennium Summit marked the start of a discussion on financing the necessary measures which was continued at the International Conference on Financing for Development in the Mexican city of Monterrey in 2002. At the Monterrey Conference, developing and industrialised countries looked for the first time at all the conceivable sources of financing for development. In the Monterrey Consensus they agreed to increase official development assistance (ODA), generate more foreign direct investment, mobilise domestic financial resources in developing countries and reduce international trade barriers. They also agreed a debt relief initiative and sought greater involvement on the part of developing countries in the reform of the international trade and finance architecture and in the planning of international development cooperation. The Doha Declaration of December 2008 reaffirmed the Monterrey Consensus in its entirety and highlighted certain new areas of concern. The outcome document contains the renewed commitment to mobilise all possible financial resources to achieve the internationally agreed development goals and to eradicate poverty. The Member States of the European Union pledged in 2005 to increase spending on official development assistance to 0.51 per cent of gross national income (GNI) by 2010 and to 0.7 per cent of GNI by 2015 on the basis of a phased plan. New Member States which joined the EU after 2002 are committed to achieving a quota of 0.33 per cent of GNI by 2015.

During the economic and financial crisis, the industrialised countries
introduced stabilisation programmes to strengthen their economic and
financial structures. As part of the associated exit strategies they are now
gradually reducing their debt levels. This could well have an impact on the
amount they spend on development assistance. Any such cutback in
official development assistance would lead to a shortfall in funds for such
urgent tasks as the worldwide fight against poverty and climate change.
One serious consequence of this would be a loss of confidence on the part
of developing countries in the industrialised countries since the latter have
failed to keep their promises. This in turn could lead to hunger riots and
growing crises. The interim assessment of progress towards achievement of
the Millennium Development Goals at the follow-up conference in New
York in September 2010 reflected these concerns. The conference identified
progress in the areas of education and the control of HIV/Aids, malaria and
other transmittable diseases, resulting in part from the work of the Global
Fund. Little progress has been made, however, in reducing child mortality
and improving the health of mothers.

While private finance initiatives have certainly achieved some
noteworthy successes, their limitations have also become clear. In times of
crisis there is a great danger that private companies acting as financial
backers will withdraw from a country and prevent the establishment of a
sustainable system to finance development. Private companies have
actually done this even in relation to microfinance institutions.

The industrialised countries must keep their 0.7 per cent promise. One
way they can do so is by increasing budgets. But there is also a need to
identify innovative sources of financing if the Millennium Development
Goals are to be achieved on time and in full. The financial transactions tax
offers a good way to enforce the "speculator pays" principle and ensure that
the financial services industry share the costs of the crisis.

Many European countries have now announced their support for a tax
on financial transactions. Every effort must therefore be made to ensure a
positive outcome at the next G20 round – if necessary in association with
the group of those countries which would like to take a leading role during
the implementation phase of such a tax. The financial sector must do its
part to tackle the aftermath of the financial crisis. A tax of this nature
would discourage short-term transactions and at the same time mobilise
billions globally for the fight against hunger, poverty, joblessness and
climate change.

In addition to increasing ODA and introducing a financial transactions
tax, it is also necessary for the developing countries to boost their own
incomes. They must be given assistance to establish their own tax systems
since experience indicates that this generates a two to threefold increase in revenue.

The financing of development must at the same time be part of a worldwide growth strategy which seizes the opportunity to establish stable and sustainable markets. Industry should make a contribution to sustainability in the form of global green investments.

Cooperation agreements between the industrialised countries and new donor countries such as China, India, Brazil and other developing countries can be used to exchange know-how and financial resources and to work together towards the achievement of the Millennium Development Goals.

There is no lack of ideas as to where money for development cooperation could come from. Rather, when budgets are cut and cooperation agreements fail to materialise, this is more a demonstration of a lack of political will. We should not allow ourselves to go down in history as the generation which spent billions on bailing out the financial sector but did not have the strength or the will to save the world from hunger, poverty, unemployment and climate change.
# THE G20 AND RECOVERY AND BEYOND
## AN AGENDA FOR GLOBAL GOVERNANCE FOR THE TWENTY-FIRST CENTURY

A group of 'experts', with no commitments other than of being citizens of the world, decided to meet to reflect on what could be done in the present situation, hoping that from their reflection some useful recommendations to the powerful of this world would emerge. This group, which christened itself the Paris Group, has been constituted at the invitation of the President of the French Republic, who also presides over the destiny of the G20 this year. The Chairmen were given complete discretion in the choice of the membership of the group; their sole responsibility was to gather a diverse group of individuals with the highest level of expertise in the subjects confronting the G20 and with a commitment to working to ensure the improvement in the system of global economic governance.

The chapters which compose the ebook contain a summary of the discussion between the members of the group prepared by Jean-Paul Fitoussi and Joseph Stiglitz and the preparatory notes which have been written by them.

**Chairs:**

**Jean-Paul FITOUSSI** is professor of economics at LUISS Guido Carli University, Rome, and Director of research at OFCE, Paris of which he was President from 1990 to 2010. He is also emeritus professor at Sciences Po, Paris.

**Joseph E. STIGLITZ** is a professor of economics at Columbia University and the recipient of the John Bates Clark Medal and a Nobel Prize. He is also the former senior vice president and chief economist of the World Bank.

**Other members of the group:** ARROW Kenneth J., ARESTIS Philip, BESLEY Tim, BOUGROV Andrei, BOURGUIGNON François, BOURGUINAT Henri, DE CECCO Marcello, DERVIS Kemal, JOHNSON Robert, KASEKENDE Louis, MIRRLEES James Alexander, NDIKUMANA Léonce, OCAMPO José Antonio, PAEZ PEREZ Pedro, PERSAUD Avinash, REDDY Venugopal Y., SAKAKIBARA Eisuke, STERN Nicholas, WIECZOREK-ZEUL Heidemarie, YONGDING Yu, ZETI AKHTAR Aziz.