By Cho Jin-seo
The G20 Seoul Summit showed that the Group of 20 will not produce quick fixes for all problems just overnight, but the two-day meeting also proved that it is highly effective, probably more so than any other international frameworks the world has had, if its goals are clear.
The final statement’s lack of clear action plans on “global imbalances” and a “currency war” may be disappointing to many, given that anticipations were built up for a possible dramatic compromise. But it should also be noted that the group has been efficient and successful on other important issues such as the tightening of banking regulatory codes, preventing them from being too-big-to-fail, and setting up national firewalls on capital volatility.
“The world has no other option,” summarized Sakong Il, the chairman of the Seoul Summit Preparation Committee. “The United Nations represents 192 nations, but it has its own mandate. And we know that the G7 and G8 do not work very well anymore. Only the G20 can make fast and effective decisions on the global economy,” he said after the summit was over Friday.
Sakong couldn’t completely erase disappointment from his face during the press briefing, when he heard that many foreign news agencies were labeling the summit as a failure. But then he insisted it is now that the Korean media’s role was to record the event as a big success, so there can be at least one kind of global balance made at the Seoul Summit.
It was a joke. But his assertion was not without sound reasoning.
The Seoul summit made many reforms possible for the global financial system. The most remarkable feat was reform of the IMF governance structure, in which emerging nations were given 6 percent more of the voting shares and two executive board seats ― ceded by richer nations.
Though the agreement was announced earlier at the Gyeongju finance ministers’ meeting last month, the two meetings should be viewed as part of a single decision making procedure, officials point out.
“This was a very heated process. I was surprised to see that financial ministers of large countries can be so aggressive over a few basis points (a hundredth of a percentage point) of IMF voting shares,” said Kim Yong-beom, a Korean official who oversaw the IMF and SIFI issues.
Another major achievement of the G20 summit was the resolution on the too-big-to-fail banks, dubbed “systemically important financial institutions (SIFIs).”
Though the details are not articulated on the 21-page main text of the Seoul Declaration, the G20 and the Financial Stability Board (FSB) agreed on plans and timelines to force large banks to become safer and more prudent.
According to the release from the Seoul summit committee, the FSB will announce a list of SIFIs by mid-2011, and define additional regulations for them by the end of the year.
This is a moral victory. Given that large global banks have been lobbying hard to prevent this from happening, the development of the “SIFI Rule” is a proof that money cannot take precedence over everything.
These successes do not mean that the G20 can now be complacent about its power. What happened in the financial markets during the summit was a clear warning that it still has a long way to go to make a safe and stable global finance system.
Most of the world’s major stock markets saw large drops between Thursday and Friday as worries grew over several European economies, regardless of what was going on at the summit. China’s CSI 300 index, for example, dropped 6.2 percent on Friday alone.
Banks also spat in the faces of the G20 leaders. Deutsche Bank’s trading arm paralyzed the Seoul stock market Thursday while the leaders were arriving, by selling 1.6 trillion won ($1.4 billion) worth of option contracts in the final 10 minutes.
The KOSPI index nosedived 50 points. This was precisely the kind of greedy and irresponsible action the G20 has been trying so hard to prevent from happening again, and yet the group was found powerless against the forces of the market.
This kind of continuing volatility of global financial markets is giving more power to voices that call for more government intervention in the future. One carefully inserted paragraph of the Seoul Declaration is that the G20 will allow countries “facing undue burden of adjustment” and with “adequate reserves and increasingly overvalued flexible exchange rates” can adopt “macro-prudential measures.”
The clause can be interpreted that Korea and other emerging economies will be able to adopt measures to stem the flow of cross-border capital without raising too many objections from rich nations. This, again, is a victory of the G20 over the decaying Washington Consensus.
High expectations usually accompany big disappointments. The G20 Seoul Summit was not an exception; but even though the final statement seemed not so different from that from the Gyeongju meeting, its achievements should be viewed over a longer time horizon.
It is obvious that a world with the G20 is better than a world without it. Seoul did a good job in keeping the momentum alive over the past year.
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