By Kim Tae-gyu
Staff Reporter
President Lee Myung-bak is expected to play a bridging role between industrialized and developing countries when leaders of the Group of 20 most developed economies (G20) gather at a weekend summit hosted by President George W. Bush in Washington.
At the summit, President Lee is expected to push for continued global free trade to prevent the world economy from further contraction, according to Cheong Wa Dae spokesman Lee Dong-kwan before their departure to the United States, Friday. The President will arrive in Washington early Saturday morning (KST).
He said President Lee will appeal for a ``stand-still’’ for world trade barriers and investments, meaning that all countries should refrain from erecting trade and investment barriers to protect their economies.
The summit will address measures to grapple with the ongoing global financial crisis.
Experts say that high on the agenda will be fiscal stimuli, regulatory reforms, new accounting rules, market supervision and a revision of international organizations’ structures.
``Basically, the meeting is about solving the financial distress and preventing a recurrence. Fiscal packages and global organizational structures are in the realm of the former, while accounting rules and market oversight are related to the latter,’’ Woori Securities economist Lawrence Kim said.
``Among them, a globally coordinated stimulus package is projected to be at the heart of the Washington meeting as this is directly related to addressing the financial turmoil as soon as possible. It cannot be a quick fix, though,’’ he said.
Roubini Global Economics (RGE) also stressed the global stimulus plan. RGE is a financial analysis firm led by Nouriel Roubini, an economics professor at New York University who has recently come to prominence as he predicted the global financial storm a couple of years ago.
``There have also been calls by some countries for a global fiscal stimulus to offset the decline in private aggregate demand and cushion consumers and firms from the prolonged global slowdown,’’ RGE said in a document posted on its Web site.
``Coordinated action, especially one including the U.S. and the EU might be more effective than stimuli by individual countries, while also preventing leakages via trade and capital flows,’’ it said.
Coordinated pump-priming measures are expected to win the endorsement of most G20 participants as almost all major economies with the sole exception of France having already announced their own schemes.
The United States, Japan, Germany and China have their own independent stimulus packages and the United Kingdom is likely to join them in the near future.
RGE picked up the expanded role of the International Monetary Fund (IMF) as a potentially important item on the agenda because the Washington-based financial firefighter will have more to do to deal with the crisis.
``Also, the financial crisis has reemphasized the role of the IMF, as it becomes the chosen vehicle for financial support to emerging market economies caught short by the reversal of capital flows and financial market disruptions,’’ RGE said.
But there are problems ― countries take issue with the capability of the IMF to solve the current financial meltdown because there has been very low demand for its assistance of late.
In addition, the IMF has funds of just over $200 billion, which is not enough to bail out all ailing economies. In this climate, RGE said Asian countries may have to come to the rescue.
``With strong growth and foreign exchange reserve accumulation, Asia led by China may have a role to play in bailing out the global financial system, and cushioning from a global economic slump by lending reserves directly or via institution like IMF,’’ RGE said.
However, China might not be happy with the idea of channeling its dollars into the IMF to increase the organization’s $200 billion war chest because of its small voting rights.
The IMF board gives small European countries such as Belgium larger voting rights than China.
Experts say emerging countries including China may seek one of two options _ asking for a bigger say on the IMF board or attempting to create a new organization to replace it.
But such a sweeping idea is unlikely to be addressed in the Washington summit, which was arranged by the lame duck Bush administration.
``The overhaul of the global financial framework will not be an issue until President-elect Barrack Obama takes office. The current administration cannot take on such a big thing,’’ Meritz Securities economist Shim Jae-youp said.
``Hence, I don’t think that the G20 summit will produce groundbreaking measures. At the end of the day, you may be disappointed with the meeting,’’ he said.