[G20] G20 facing bumpy road ahead
“What on earth is the use of the G20 meetings for the global economy?" This comment typified the reactions of market pundits after last November’s Cannes summit. There had been growing expectations from market participants that the elite group of 20 could reach an agreement on expanding IMF resources to tackle the eurozone sovereign debt crisis, but as it turned out, little progress was made. Worse, while the meeting was underway, the GIIPS (Greece, Ireland, Italy, Portugal and Spain) sovereign debt spread indicating that their credit risk widened to a record high amid the heightened uncertainty over Greek and Italian fiscal retrenchment.
The G20's policy coordination after the outbreak of the 2008 global financial crisis is regarded as a significant success. Its decisive actions played a major role in driving the recovery by dramatic fiscal expansion, monetary easing and financial regulatory reform to avoid financial market collapse and a second and global Great Depression. The G20 leaders came up with tangible solutions to jump-start the global economy at a series of five summits from Washington in 2008 to that Seoul in November 2010.
The G20 Summit in 2012 is to be held in Mexico in June. With uncertainties at fever pitch on a further deterioration of the eurozone sovereign debt crisis and a double-dip recession of the world economy, the G20 leaders have little scope to present viable policy options. The Mexican Ministry of Finance and Banco de México held a G20 high level seminar on Dec 12 and 13, 2011 to debate the 2012 G20 agenda.
The G20 discussions this year are expected to take the following direction: First, the creation of global demand to ensure strong and sustainable growth is seen as the biggest issue. It is very likely that Mexico will steer the discussion towards growth promotion policies to heighten productivity involving long-term structural reforms and to unwind global imbalances by exchange rate adjustment.
Second, the discussion about the expansion of the IMF resources will be continued as an effort to strengthen the international financial architecture. The increase of IMF resources, which failed to be agreed to at the Cannes Summit, is expected to be on the agenda for this February’s G20 meeting, with a divergence of opinions between the eurozone countries on the one hand and the emerging economies and non-eurozone advanced economies.
Thirdly, on financial regulatory reform issues, the emphasis is expected to be on countries' implementation of Basel III and the regulation of systematically important financial institutions (SIFIs), shadow banking and OTC derivatives.
Fourthly, the development agenda is likely to be discussed mostly in relation to green growth, climate change and food security.
As the premiere forum for the world economy, the G20 Summits are very important for Korea. They provide the opportunity to make its voice heard in a process of policy discussion and reconciliation bringing together the major advanced economies and emerging economies. Since Korea is not a member of the G7, the G20 is a platform open to us for international policy cooperation and we should press emphatically for it to take over some aspects of the G7’s role.
At the upcoming G20 meetings in Mexico this year, we should build our policy capacity to further our national interests and to serve as a bridge between the advanced and the emerging economies. Also, we should steadfastly advocate a strategy of win-win growth, expanding domestic demand ourselves while strengthening export competitiveness. Thirdly, we should take an active initiative on further strengthening financial safety nets, improving macro-prudential policy framework and green growth. We cannot look to be welcomed across the threshold of the advanced economies without having scaled the heights of the G20.
Kim Jae-chun is deputy governor of the Bank of Korea.