Scenarios for regionalism in the G20

After the accession of the African Union (AU) into the G20, there may be further scope for more regional integration blocs to be represented in the G20 platform. In particular, Brazil has opted to invite MERCOSUR as its key regional integration project to participate in the G20 2024 meetings. The membership of the African Union (AU) and the EU in the G20 creates opportunities to engage regional arrangements to a greater degree in G20’s economic policy agenda, with one of the possibilities in this domain being the creation of an engagement group for regional integration arrangements and their development institutions. The emergence of an R20 (regional 20) engagement group within the G20 would open up a number of scenarios for economic policy-making that could bring regionalism more in sync with the operation of global multilateral institutions.   

One set of such scenarios has to do with the modalities of coordinated stimulus to be undertaken by G20 and the other deals with the evolution of alliances and the scale of competition vs. cooperation among the regional integration blocs in the world economy. Our view is that the creation of an R20 platform would be wealth-enhancing in terms of both raising the efficiency of the G20 coordinated stimulus as well as in directing the interaction among the regional integration blocs towards a more cooperative track. Within this scenario, the IMF would work closely with regional financing arrangements (RFAs) in devising ex-ante anti-crisis measures as well as diagnosing the potential fragilities for economic stability at the regional and global levels. This would in turn allow for the world economy and the IMF together with regional institutions to expeditiously launch coordinated anti-crisis measures in the event of a downturn in the global economy.   

A horizontal mechanism of cooperation among the largest regional integration blocs would also create scope for improving the efficiency of the G20 coordinated stimulus. While the most recent G20 coordinated stimulus undertaken in 2020 was superior to that of the 2008-2009 period in making use of the resources of the multilateral development banks, there arguably remains significant scope to further raise the level of utilization of resources available in the Global Financial Safety Net (GFSN). In order to magnify the synchronicity effects of the fiscal spending at the country level, other layers of the Global Financial Safety Net could be employed, namely the stimulus coming from the regional and global development banks/institutions as well as Regional Financing Arrangements (RFAs). The involvement of regional arrangements such as RDBs and RFAs within the G20 coordinated stimulus is warranted by their sheer size – in terms of available resources regional development banks vastly exceed the fire-power of global institutions such as the World Bank, while the resources of the IMF have also been surpassed by RFAs in recent years[1].

A platform for regional integration arrangements could also raise the degree to which the stimulus can reach a greater number of regions and economies across the globe via the more targeted measures and additional stimuli undertaken in the respective regional integration arrangements. This is due to the significant capability that regional institutions possess in tracking intraregional spillover effects as well as their experience in promoting economic policy coordination within their respective regions. A coordinated G20 stimulus can hence become more targeted, effective and sizeable with the involvement of regional blocs and their developing institutions.

In assessing the potential response to global downturns and crises, the Financial Stability Board (FSB) should incorporate scenarios that involve the use of resources at the disposal of regional integration arrangements. Without the creation of the R20 platform within the G20, the base case scenario is for the coordinated stimulus to remain ad hoc and largely limited to G20 member country contributions. The insufficiency of inputs from regional blocs and their development institutions is likely to result in negative implications for both the overall economic effects of the stimulus and the penetration of stimuli to the various regions and economies across the globe. In a scenario without the formation of an R20 platform with no framework for horizontal coordination among regional integration blocs there may also be a non-negligible possibility of competition and even tensions among regional integration blocs.

A more cooperative scenario could be associated with an early formation of a horizontal platform for regional integration arrangements at the level of G20 allowing the regional blocs to discuss a set of harmonized standards and norms that could facilitate the process of greater market openness and economic cooperation across the regional integration blocs. The R20 platform could expand the scope for exchanges among the regional integration blocs in international best practices as well as in overcoming trade tensions and disagreements. Most importantly, the R20 platform would allow for a significant expansion in the outreach of the G20 to a far wider number of countries, addressing thus one of the key weakness of the G20 framework, namely its lack of legitimacy/inclusivity in representing the entire global community.  

A regional platform for regional integration arrangements may be particularly instrumental in addressing global environmental challenges, with the R20 platform providing a forum for the harmonization of environmental norms and standards at the level of regional integration groups. In fact, an engagement group within the G20 composed of regional arrangements may be better positioned in dealing with environmental challenges compared to country-to-country coordination platforms given the intensity of cross-country spillover effects in the environmental sphere and the limitations in attempting to resolve environmental challenges (that are regional/global in scope) exclusively within national boundaries.

Overall, there may be a number of benefits in creating a “regional 20” (R20) engagement group within G20. In particular, the R20 platform may widen the scope of resources that could be employed by the G20 in launching anti-crisis stimuli via encompassing the resources of regional development banks and regional financing arrangements. It would also raise the effectiveness of coordinated G20 anti-crisis measures via using the regional arrangements to propagate anti-crisis stimuli more effectively throughout the world economy. The R20 platform could also generate new lines of communication and economic diplomacy between the Global South and advanced economies via creating scope for dialogue among such leading regional blocs as MERCOSUR, ASEAN and the EU.

In the longer term the creation of the R20 platform within G20 may become part of a broader task that targets the reconstruction of global economic architecture through the incorporation of a regional layer of global governance. The R20 may promote horizontal coordination across regional institutions as well as vertical cooperation with global multilateral organizations – RFAs with the IMF, regional development banks with the World Bank, and the regional integration arrangements with the World Trade Organization (WTO).

Yaroslav Lissovolik, Founder, BRICS+ Analytics

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[1] K. Moriyama et al. “Collaboration between regional financing arrangements and the IMF”, 2017, IMF Background paper, p. 9. Available from: