Rift emerging over current account cap
A schism is emerging among top Korean officials preparing for the G20 Seoul Summit over a solution to the most controversial issue that was patched up during last week’s precursor meeting in Gyeongju.
The issue regards whether to introduce a specific target on surpluses or deficits a country has in its current account in relation to its gross domestic product (GDP).
At the Gyeongju meeting of finance ministers and central bank governors, the participants decided not to introduce the suggestion pushed jointly by the United States and Korea, settling for an ambiguous, yet-to-be-determined term, “indicative guidelines,” in their joint communique. The International Monetary Fund is expected to be the arbiter of the guidelines.
Now, Finance Minister Yoon Jeung-hyun wants to go after a country-by-country cap in the summit slated for Nov. 11 to 12 to once and for all bring a solution to the dispute caused by China’s ever-increasing surplus in combination with the U.S.’ chronic deficit, an imbalance that had threatened to blow into a full-blown “currency war” prior to the Gyeongju truce.
“There will be a template upon which each nation will specify its target on the current account balance,” he told reporters at the Gwacheon Government Complex on Monday.
He said that the Gyeongju agreement may be of little use, if it is not supported by specific implementation plans at the summit.
Yoon’s assertion struck a contrast to that of a top official at Seoul’s G20 preparatory committee.
In the post-Gyeongju meeting briefing given as background, the official, who asked not be named, told reporters that it could be actually better not to have a fixed target on the current account balance.
“Some may think that it was a failure that we did not agree on a specific target. But from the perspective of economics, it can be more efficient and effective just to make a general agreement on a global policy direction, rather than specifying a target and enforcing it,” he said. “Peer pressure can work very well in achieving the ultimate goal without having fixed targets.”
Contrary to the previous G20 meetings that were prepared by finance ministers of host countries, Korea has a preparatory committee, headed by Sakong Il, devoted to it, with staff on loan from the finance ministry and the Financial Supervisory Service as well as other related government agencies. The official is not from the finance ministry but is greatly involved in determining and negotiating terms of key agenda issues.
A person close to the finance minister suggested Monday that the committee official, who prefers flexibility in the G20 statement, will probably change his mind in order to put himself in line with the minister.
“He has changed his words on other issues several times, so it may be the same case this time,” he said.