G20 Gyeongju meeting raises hope for Seoul summit in Nov.
― Korea to introduce practical guidelines on current account balance―
By Kim Jae-kyoung
The world has taken an important step to tackling global imbalance as Group of 20 member nations agreed Saturday to stop a currency devaluation race and overhaul the governance structure of the International Monetary Fund (IMF).
The outcome of the G20 meeting attended by finance ministers and central bank governors in Gyeongju has raised hopes that the G20 Seoul Summit slated for Nov. 11 and 12 will bring about practical solutions to the global economy, which will help the G20 remain as a going concern.
“Following the Toronto Summit in June, there have been growing doubts about the legitimacy of the G20 summit, as most of the previous gatherings were only slogan-oriented with no workable agreements and solutions,” said a source who participated in the gathering on condition of anonymity.
“The significance of the Gyeongju meeting was that the G20 is now somehow given the legitimacy, which I believe is the real achievement beyond what they agreed on,” he added. “After the meeting, not everyone is fully satisfied with the outcome, but no one is displeased with it, which is very important.”
The biggest part is that Saturday's agreement is expected to defuse mounting tension between China and the United States over Beijing's currency policies. Under the accords, the U.S. has secured some leeway to reduce its trade deficits, while China may feel less pressure to let the yuan appreciate further.
In a joint statement, the finance ministers and central bank governors from G20 nations said that they will “move toward more market-determined exchange rate systems” and “refrain from competitive devaluation of currencies.”
They also settled on a 6-percent shift of voting quota at the International Monetary Fund (IMF) by 2012 to emerging economies, with China emerging as the third largest voting power after the United States and Japan.
The agreements at the Gyeongju meeting are sending two important messages. First, no country in the G20 wants to see the world’s policy forum collapse for their own interests as a failure in global cooperation can, in turn, have a repercussion on them.
Secondly, they imply that advanced and developing countries are narrowing down the difference on the key issues, meaning that the world is taking one step closer to finding workable solutions.
Global economists said that the agreements are good, given that the G20 is considered too large and unwieldy to meet on a regular basis, and to reach sensible conclusions. In particular, they gave high marks to the IMF reform.
“I think it was a good outcome. The decision to boost the quotas of the emerging market developing countries especially is a lasting and welcome development, suggesting that the IMF is going to be more legitimate, and representative,” Jim O’Neil, chairman of Goldman Sachs Asset Management, told The Korea Times.
“It was clever of the G20 to have a `deliverable.’ On foreign exchange imbalances, I think the statement also suggests some progress, especially as it relates toward China and the Chinese yuan,” he added.
Agreements not binding
However, they pointed out that since most of the agreements are not binding, there should be more efforts before the November summit. The G20 agreed to reduce trade imbalances and set a guideline of current account balance for each nation but since the agreement is still at a concrete level, it is still unclear whether the G20 can generate tangible solutions.
“The reform of the IMF is a remarkable achievement. But on global rebalancing, I would not get too euphoric,” Moritz Schularick, an economics professor at the Free University of Berlin, said via email from Germany.
“A lot of good intentions, but I think there was not much tangible progress on the underlying real issues. The good outcome is that cooperation on the currency issue continues,” he added. Schularick coined the term ``Chimerica,'' a fictional combination of China and America, together with Harvard University professor Niall Ferguson,
In the meantime, the Gyeongju meeting highlighted the "leadership" role of South Korea as the chair of the G20 summit. The country took the initiative in bridging the perspectives between advanced and emerging economies and persuading both of them to agree on thorny issues.
“I think that Korea’s leadership role has been recognized as the country played a key role in keeping the G20 alive and useful by leading member countries to find the middle ground on the major issues and make some concrete progress,” said a ranking government official, refusing to be identified.