In 1999, in the wake of the Asian financial crisis in 1997-1998, the leading members in the G7 invited the ministers of finance from a select group of countries, including the G7 countries, and the European Union, to meet. This resulted in the formation of the G20 Ministers of Finance in September 1999 .
In 2008, as part of the response to that year's global financial crisis, the G20 was elevated to the level of a summit of heads of government.
The next year, at the Pittsburgh G20 summit, the participating states declared that the G20 was the "premier forum" for global economic governance .
This announcement, while its practical implications are not yet clear, amounted to a public acknowledgment that the G7 was no longer capable of managing the global economy on its own and needed to share this responsibility with a broader group of countries. However, it is important to note that the G7 still continues to meet and to play a role in the governance of the global economy.
The Two Tracks
The G20 refers to more than a grouping of countries. It is also a short-hand reference to a complex cluster of governance activities. The apex of this cluster is the annual summit of the leaders of the G20, which is the culminating event of an annual work programme consisting of two work streams.
The first, which is guided by ministers of finance and central bank governors, deals with a range of financial and economic issues . These officials meet regularly to discuss global economic conditions and to coordinate their responses to these conditions.
They are supported by seven working groups, each consisting of and co-chaired by officials from G20 states. The seven working groups deal with developing the framework for strong sustainable and balanced growth, financial regulation, financial inclusion, the international financial architecture, energy and commodities markets, energy and growth, disaster management and climate finance.
The working groups, in addition to their specific mandates, follow up on the decisions and requests of the G20 leaders, promote cooperation between the participants in the G20 process on particular issues, and help shape the summit discussions and communiqué.
The second track is the Sherpa track . This track, in which each leader is represented by an official, known as the leader's "sherpa", is responsible for the political aspects of the G20's work.
Its workload is undertaken by working groups and it is supplemented, in some cases, by meetings of ministers other than ministers of finance.
Currently, there are working groups for such issues as employment, agriculture and food security, energy, corruption, and development.
The Roles of the G20
These activities suggest that the G20 plays three critical global economic governance roles.
First, it is a crisis manager. In this capacity it has forged agreement on the actions that the participants, individually and collectively, must take in order to try and resolve the current financial crisis.
Second, the G20 is the orchestrator of global economic governance. It is the setting in which the major economies meet with the leading international institutions - the IMF, the World Bank, the WTO, the UN - to discuss the key economic challenges facing the international community and coordinate their responses to these challenges.
The G20, therefore, enables the relevant policy makers and technical experts from the participating countries and international organizations to meet and seek common understandings and approaches on particular issues of global importance.
Third, the G20 is a communicator. It helps to promote international global awareness of the challenges facing the global community and the approach that the most powerful countries are considering for dealing with these challenges.
There are three aspects of the G20 structure that should be noted.
First, the number of G20 participants, in fact, exceeds 20. They usually include a number of additional states that are invited by the G20 chair, who is the host state for that year's summit.
Some of these states, such as Spain, are regularly invited in their own right and some are invited because of their position as chair of an important regional body, such as the African Union or the Association of South East Asian Nations.
In addition, the regular participants include international organisations like the IMF, the World Bank, the regional development banks, the Bank for International Settlements (BIS), the Financial Stability Board (the FSB), the International Labor Organization (ILO), the Organization of Economic Cooperation and Development (OECD), the United Nations Conference on Trade and Developemtn (UNCTAD), the United Nations Development Program UNDP) and the World Trade Organization (WTO).
These organisations can participate in both the summits and in those other G20 meetings that are most relevant to their work.
Since the G20 does not have a permanent secretariat, the participating international organisations usually assume responsibility for preparing the background studies and policy proposals requested by the leaders of the G20. For example, the FSB and the IMF coordinate studies on financial regulatory issues.
In addition, these organisations can be expected to work with their non-G20 member states to implement applicable recommendations of the G20.
It is not clear what role, if any, they may play in informing the G20 about the views of their non-G20 member states.
Second, the G20 has begun a process of outreach to other stakeholders in the global economy. This process, which is managed by the chair of the G20, usually includes meetings of business leaders and labour leaders from the G20 countries, and separate meetings of representatives of think tanks, civil society, and youth groups from these countries.
These meetings, which may lead to reports that feed into the G20 process, are an opportunity for the G20 to learn the views of other stakeholders.
Third, the G20 has initiated a peer review process, called the Mutual Assessment Process that is designed to ensure that the economic and financial policies of the G20 are coordinated and compatible.
In this process, each of the states are expected to report on their macro-economic policies and to have them reviewed by their peers in the G20. The process is managed by the IMF.
Informality and impermanency
Given its important role in global economic governance, it is striking that the G20 remains an informal grouping of states and international organisations. It is not based on a treaty and has no formal international legal personality. In addition, it has no permanent headquarters or secretariat.
As a result, the reports, communiqués, and documents that it issues have no formal international legal status. Thus, when G20 states make firm commitments in the communiqués and other G20 documents, they do not constitute obligations for which states can be held legally responsible if they fail to comply.
This does not however mean that non-compliance has no consequences for either the G20 states or for other stakeholders. First, in some cases, a G20 country's failure to comply with the G20's decisions can adversely affect its credibility, its relations with other G20 states, and its access to financing. In addition, G20 decisions can have, and in some cases are intended to have, an impact beyond the participants in the G20.
For example, non-G20 states that fail to comply with G20 financial regulatory and transparency requirements can suffer adverse consequences in terms of their borrowing costs, the attractiveness of the country to foreign investors, and their relations with the states and international organisations that participate in the G20 . Non-state actors in these countries, for example financial institutions, can suffer analogous adverse consequences.
Thus, for these states, and the non-state actors in these states, the decisions and actions of global economic governance de facto have a compliance pull that is stronger than for the richer and more powerful states.
This differential impact on the various stakeholders in the global economy is exacerbated by the legal status of the current arrangements. It makes it difficult for adversely affected stakeholders to hold a key actor like the G20 accountable for its decisions and actions.
This situation of power without accountability is troubling and requires a response. One possible response is a framework for assessing the outputs of global economic governance decision making.
Finance ministers and central bank governors started to hold annual meetings after the inaugural meeting on December 15-16, 1999, in Berlin.
See: http://www.g20.org/docs/about/about_G20.html G20, G20 Leaders Statement: Pittsburgh Summit (Sept. 24-25, 2009) (stating "we designated the G20 as the premier forum for our international economic cooperation.") available at http://www.g20.utoronto.ca/2009/2009communique0925.html.
The Finance Track, G2012 Mexico, http://www.g20.org/index.php/en/financial-track.
Sherpas' Track, G2012 Mexico, http://www.g20.org/index.php/en/sherpas-track.
See generally, Chris Brummer, Soft Law and the Global Financial System (2012).