The following is the full text of President Lee Myung-bak's keynote speech made at the Group of 20 financial summit in Washington, D.C., on Saturday.
The global economy is facing an unprecedented financial crisis. Many consider it to be the worst since the Great Depression of the 1930s.
What is required at this moment is a truly global response. Fortunately, this G20 Summit represents not only developed countries but also emerging economies. For this reason, our meeting today is not only appropriate, it is most timely. We should, of course, remember that the entire world is watching us. We must come up with a substantial outcome, or else we are going to disappoint the people of the entire world.
Moreover, we should come up with an action-oriented plan through substantive discussions.
The first priority for us to address is ensuring adequate liquidity in all our economies. To this end, every one of our economies should review the measures already taken for this purpose and implement additional preemptive actions together as needed.
Based on Korea's experience in overcoming its 1997-98 crisis, I would observe that it is very important that actions are not only preemptive but also decisive and sufficient.
I would also observe that to overcome the ongoing crisis, ensuring sufficient liquidity in foreign currencies is vital. This is particularly true of emerging economies.
To this end, I would like to make two specific recommendations:
First, I wholeheartedly welcome the recent agreements for currency swaps between the U.S. and several emerging economies, including Korea. There is no doubt that these agreements have gone far toward stabilizing financial markets throughout the world. Hence, I would urge other major economies to enter similar agreements with emerging economies.
Second, the recent decision by the IMF to introduce the Short-term Liquidity Facility (SLF) is also a most welcome development in this regard. What we need now is to extend benefits of SLF not only to emerging economies but also to other developing countries not participating in today's meeting. Extending benefits of programs such as the SLF would require, of course, a larger capital base for the IMF. Hence, I propose we agree to increase capital for the IMF.
If the current financial crisis spills over into the real economy, there is little doubt that it will deepen and prolong the economic slowdown globally. Such a slowdown in turn will aggravate the current financial turbulence even more.
In this regard, it has been commendable that major economies have so far coordinated their policy actions, including interest-rate cuts and liquidity injections. Now, what G20 countries need to work together to do is not only to expand public expenditures but also to strengthen the counter-cyclical effects of their policies. In this regard, I wholly welcome the recent decisions by the governments of China and Japan to greatly expand their public expenditures. Korea, for its part, has also decided to increase public expenditures and cut taxes in an amount equal to 3.7 percent of its GDP.
It goes without saying that priority in public expenditures should be given to creating job opportunities and strengthening the social safety net for the segment of the population most vulnerable to economic downturns.
Especially, at times of great economic difficulty, it is tempting to resort to protectionism. The problem with protectionism is that protectionism by one country triggers protectionism in other countries. As a result, economic conditions worsen for the whole world. We should remember that emerging economies will become the biggest victims of protectionism in any form or shape. For this reason, I would like to propose that G20 countries make a "Stand-Still" declaration on trade and investment restrictions.
In the same spirit, not only G20 members but the entire global community should redouble its efforts to bring the Doha Round of multilateral trade negotiations to an early, successful conclusion.
The current agenda for reforming the international financial system includes: promoting transparency in financial transactions; increasing the accountability of market players; establishing international codes and standards for financial supervision; increasing oversight on rating agencies; improving international accounting standards; realigning the functions of international financial institutions, such as the IMF, FSF and BIS. In addition, there are discussions bearing on the restructuring of financial supervisory agencies at the individual country level.
I would like to remind all of you that, as part of its efforts to overcome the 1997-98 financial crisis, Korea successfully established a consolidated financial supervisory agency that oversees banking, insurance and securities. May I suggest that some of you review our experience in this regard.
Before closing, I would like to observe that we need to discuss the many excellent ideas presented here, but, given the time constraint, we cannot discuss them in any detail here. For further development of these ideas and thorough review, we will do better by establishing a Working Group under the G20 umbrella and discussing its recommendations on various issues at our next meeting.
History tells us that measures taken during a crisis tend to be one-sided and sometimes overshoot. I wish to emphasize that the key objective of the policy measures we take at this meeting should be to normalize the workings of the market, not to distort them.