Leaders may seek compromise on currencies
By Kim Jae-kyoung, Kim Tong-hyung
Leaders of the Group of 20 (G20) member nations are expected to reach a compromise today on trade and currency issues that have so far marred the cooperative spirit of the global gathering, in a bid to make headway in the G20 process and keep the two-year-old global policy forum afloat.
The G20 Summit began Thursday amid deep divisions among member economies, with currency tensions simmering as world leaders gathered in Seoul for the two-day summit.
They started the summit with a two-hour working dinner at 7:00 p.m. at the National Museum of Korea following President Lee Myung-bak’s welcoming remarks, with the focus on the global economic framework. U.S. President Barack Obama was late for the dinner.
The Seoul Declaration to be signed Friday by the heads of 19 states and the EU may include a couple of sensible measures to prevent currency feuds, a “standstill declaration” to avoid protectionism, and the Korea Initiative, which addresses a global financial safety net and development issues.
The declaration is likely to fully endorse the joint statement agreed upon by finance ministers in Gyeongju last month, but a clear solution to thorny issues involving foreign exchange rates and trade balance is not expected due to wide differences between the U.S. and China.
“G20 nations have so far agreed to fully endorse most of the agenda agreed upon at the Gyeongju meeting, including the BASEL III, IMF reform and a macro-prudential policy framework — tools to help mitigate the impact of excessive capital flows and the reflection of the perspective of emerging market economies in financial regulatory reforms,” a ranking South Korean government official told The Korea Times, asking not to be named.
“But they are struggling to narrow differences on foreign exchange and current account balance issues. I think that an agreement will be reached at the very last moment by the leaders on Friday,” he added.
In the communique released after the Gyeongju meeting, finance ministers agreed to move toward more market determined exchange rate systems and refrain from competitive devaluation of currencies. They also agreed to have the IMF set an “indicative guideline” of a current account balance for each nation, a measure that was designed to fix the global imbalance of growth.
The U.S., supported by Korea, called for a numerical limit but the move met a strong backlash from countries such as China, Japan and Germany. U.S. Treasury Secretary Timothy Geithner had urged each country in the G20 to adopt numerical targets to limit excesses in trade surpluses or trade deficits.
Instead of setting a specific target on current account balances, G20 countries may agree to announce a detailed action plan with the International Monetary Fund (IMF) to set up an early warning system to check for excessive imbalances.
Yonhap News Agency quoted a government source as saying, “Because of opposition, G20 leaders may agree on a compromise that calls for a resolution to the currency feud before the next G20 meeting takes place in France in November next year. A so-called Seoul Action Plan that could recommend country-specific currency and current account policies may be included in the statement at the conclusion of the summit.”
The French finance minister hinted Thursday that G20 leaders will not come up with a clear solution to the currency issue at the Seoul summit.
“Reforming the international monetary system is not something that is going to happen overnight. This is not going to be concluded and finalized tomorrow,” Christine Lagarde, French Economy Minister told The Korea Times.
“It will take a lot of time and many months to come before we arrive at a system that is satisfactory, that is more settled, that is safer and that is less volatile,” she said.
Regarding the global financial safety net, she said, “There will be multiple proposals, guidelines and tools to reconcile national economic policies bearing in mind the spillover effects that could either benefit the process or cause a drawback.”
Along with the move to reduce the global imbalance, G20 nations are expected to support agreements reached in Gyeongju to increase the capital ratio of banks and strengthen regulations on systemically important financial institutions (SIFIs).
The leaders are also expected to support the IMF’s decision to shift a 6 percent voting right from rich countries by January 2013. Other measures to be included in the declaration are universal calls for a “standstill” on all forms of protectionist measures that can affect trade.
G20 leaders will support the Korea Initiative that combines the establishment of a global financial safety net with the issue of balanced development, according to the government official.
He added that Seoul will seek to incorporate a pledge by G20 members to expand support for developing countries and fuel a drive to fight corruption that has been cited for inhibiting progress in the world’s poorest countries.