Jakarta, 28 January 2022
– The current international financial system is generally considered more resilient than during previous global crisis episodes despite a surge of Omicron cases. Notwithstanding, various risks to the international financial system must be anticipated to avoid impeding the global economic recovery process. That was the key takeaway of the G20 International Financial Architecture Working Group (IFAWG) meeting held virtually under the auspices of Indonesia’s G20 Presidency (represented by Bank Indonesia and the Ministry of Finance) on 27-28th January 2022. IFAWG is a G20 working group focused on discussing efforts to strengthen resilience and maintain international financial system stability.
On the first day of the meeting, IFAWG discussed the dynamics of capital flows and the optimal policy response for developing economies, strengthening the global financial safety net and efforts to reinforce financial system resilience against various sources of vulnerability. Risks to the international financial system, including a potentially tighter monetary policy stance given the build-up of inflationary pressures, limited policy room, persistently high leverage in different jurisdictions and higher financial market volatility, dominated the discussion considering their potential to obstruct the world economic recovery process.
Consequently, the G20 is firmly committed to reviving the global economy, while supporting low-income countries facing economic vulnerability in need of funding to address the pandemic impact by disbursing the IMF’s Special Drawing Rights (SDR) voluntarily to countries with strong external condition. This is a continuation of the global ambition applauded by G20 leaders at the Rome Summit in 2021. At the meeting, G20 members also welcomed the progress to establish a Resilience and Sustainability Trust (RST) by the International Monetary Fund (IMF) as an option for the SDR reallocation to tackle long-term funding issues in low-income countries and developing economies with vulnerabilities, particularly to tackle the pandemic and mitigate climate change. In addition, the G20 acknowledged the importance of fostering international coordination to strengthen the global financial safety net. G20 members also discussed efforts to maintain sustainable capital flows, including risks and benefits analysis of currency diversification for international trade and finance transactions.
On the second day, IFAWG discussed efforts to strengthen funding support and debt management in low-income countries. Given the conclusion of the Debt Service Suspension Initiative (DSSI) for low income countries at the end of 2021, G20 members also discussed the direction of strengthening debt management policy for poor countries via the Common Framework for Debt Treatments beyond the DSSI. Assistance for poor countries to improve their debt management capacity was also discussed. In addition, G20 members reaffirmed their commitment to increasing transparency and sustainability when providing funding assistance for low-income and developing economies, particularly with the spirit of Recover Together, Recover Stronger.
The Indonesian delegation took the opportunity to highlight the importance of strengthening the international financial system and also maintaining a multilateral spirit to address the global challenges brought by the pandemic to ensure a robust and inclusive economic recovery. Indonesia also reiterated its support to help LICs and LDCs overcome the pandemic.
The fruitful discussion and outcomes of the IFAWG meeting demonstrate the strength of collective efforts by the G20 to increase international financial system stability and resilience throughout 2022 as part of the topics to be reported and receive further guidance from the G20 Finance Ministers and Central Bank Governors at the meeting in February 2022.
 Special Drawing Rights (SDR) are international foreign exchange reserves created by the International Monetary Fund (IMF) in 1969 as supplementary foreign exchange reserves for member countries.