October 2012

Although it is widely considered to be an ineffective policy, a number of developing countries offer universal fuel subsidies. However, the prolonged implementation of fuel subsidies creates a misallocation of resources as a subsidy targets the fuel rather than the consumer. Consequently, fuel subsidies benefit the affluent more than the poor. A number of countries implement fuel subsidies, including Algeria, the People’s Republic of China, Ecuador, Egypt, Indonesia Iran, Iraq, Malaysia, Nigeria, Russia, Saudi Arabia, Thailand, and Venezuela. Granado et al (2010) reported that in countries that have subsidized fuel, on average, the top income quintile consumed about six times more subsidized fuel than the bottom quintile.

The G20 leaders group achieved several significant examples of international economic cooperation in the first few meetings during the global financial crisis in 2008 and 2009. In the fraught crisis atmosphere, the G20 discussion encouraged bolder fiscal expansion, discouraged trade protectionism, spurred the world’s financial regulators into action to re-write the inadequate rules, and drew attention to the antiquated governance structure of the International Monetary Fund (IMF). With the immediate threat of global depression averted and the eurozone crisis not amenable to a global approach, many commentators observe that more recent meetings have lost a sense of urgency and purpose. This group has been successfully established as the paramount international economic coordination body (taking over that role from the G7 and G8) with a far more representative membership, but with the urgency of the immediate crisis gone, critical attention is focusing on the G20’s composition and agenda.