Seoul Summit will specify each nation’s monetary, fiscal direction
This is the first of a four-part series on the G20 Summit agenda. ― ED.
1. Framework for strong, sustainable, balanced growth (Aug. 13)
2. Reform of international financial institutions (Aug. 23)
3. Basel III tightening of bank capital and liquidity requirements (Sep. 2)
4. Economic development of poor countries (Sept. 12)
By Cho Jin-seo
Few Americans would feel comfortable if the Chinese or Argentine governments conducted an audit on their federal accounting. The Japanese would be unhappy if the French or the Russians told them to stop working hard and adopt a more liberal way of spending. But at the G20 Summit, these unlikely international cross-checking of national policies are supposed to happen, in order to produce the final resolution of a “Framework for Strong, Sustainable and Balanced Growth” ― only if things go according to plan.
Officials in negotiations call this G20 initiative “the SSBG,” or simply “the Framework,” and it will be the main issue at the Seoul Summit. It is also going to be the most difficult one to settle.
The framework is supposed to be a book of policy instructions laid out for each of the 20 members ― 19 nations plus the European Union, and is going to be written down in very specific figures. For example, it may say “the United States should endeavor to cut its federal budget deficit by half by 2015,” or “China should increase its annual imports by 10 percent over the next three years.”
The purpose of this micromanagement of state policies is to create a “durable recovery that creates the good jobs our people need,” according to the official statement from the Pittsburgh Summit held in September 2009. “The framework is a child of the Pittsburgh Summit,” says Lee Jun-kyu, one of South Korea’s negotiators at the G20. However, in the Toronto Summit in June, world leaders could not develop the issue further.
Thus, the final statement of the Toronto summit on the framework was made up of superficial figures. “Global output will be higher by almost $4 trillion,” sounds right, but the part that says “tens of millions more jobs will be created; even more people will be lifted out of poverty” has become not very convincing. “All the tasks are left to be dealt with at the Seoul Summit,” Lee says.
The remaining questions are, how countries will agree on details of their respective fiscal and monetary policies, and whether they are willing to follow orders if the G20 succeeds to produce a framework.
The agreement process ― called the MAP (Mutual Assessment Process) ― is expected to be a hard task. At first, countries are supposed to submit reports on economic conditions and policy directions within a couple of months. Then the International Monetary Fund (IMF) and Korean mediators will compile the data and calculate global estimates and policy directions. (For this process, the IMF has prepared a set of “scenarios” on the future of the global economy.)
The country-specific instructions are not expected to be released until the final hours of the Seoul Summit, as countries will fight hard to secure room to maneuver their economic policies at a national level.
Many expect that China will be the most difficult to persuade. The country’s controlled foreign exchange policy, as well as its huge, rapidly expanding trade surplus, has been a target of Western countries’ outcry of “global imbalance.” To avoid being a scapegoat at the G20, the country has been insisting that the framework should not be articulated at a national policy level.
It is also not very clear how countries will agree on certain fiscal and monetary targets set by an international consensus, when they are struggling to get agreements at the national level, as seen in the ongoing austerity debate in most of the developed world.
The answer is “backtracking” ― politicians and policymakers in each nation will be encouraged to follow the G20 guideline, not vice-versa, whether they like it or not, Lee says. One thing is sure, global cooperation will be as hard as it sounds.
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