G-20 agenda enters spotlight as currency war rages on

Posted on : 2010-10-18 13:40 KST Modified on : 2010-10-18 13:40 KST
Major agenda items remain in the hands of traditional economic powerhouses, a strengthening trend in the wake of the global economic recovery
 Oct. 17. (Photo by Lee Jong-keun)
Oct. 17. (Photo by Lee Jong-keun)

By Park Hyun, Staff Writer

   

As a heated “currency war” rages among major powers, interest in South Korea and overseas is focusing on the G-20 Summit scheduled to take place in Seoul on Nov. 11 and 12. The G-20 is significant in that unlike its predecessor, the G-8, it is a top forum for international economic discussions encompassing nearly all of the major emerging nations by continent and can therefore reflect the interests of those nations. However, it does possess the limitation of still having major agenda items dictated by advanced nations, particularly the United States.

The G-20 Summit was established in November 2008 to facilitate a concerted response to the global financial crisis. Sensing that it would be impossible to escape the once-in-a-century crisis without the cooperation of emerging nations, including Brazil, India, South Korea, and China, the world’s largest creditor nation, the G8 nations (the United States, Japan, Great Britain, France, Germany, Italy, Canada, and Russia) broadened the scope of the meeting to include the twenty major economies. Despite being an unofficial forum, the G-8 had exerted an influence on major international organizations such as the International Monetary Fund (IMF) and World Bank prior to the financial crisis, harmonizing an international economic order based on the key concept of the globalization of neoliberal capitalism.

The G-20 maintains that neoliberalist tenor under the leadership of Great Britain and the United States and possesses the fundamental limitation of completely excluding underdeveloped nations, including the countries of Africa. However, it is significant in offering a forum for emerging nations that had previously hovered around the periphery to move into the center.

Hanshin University Economics Professor Chun Chang-hwan, said, “For the time being, it is unlikely that the G-20 will completely take the place of the G8.” At the same time, Chun said, “It is meaningful in that the forum for discussing global economic cooperation and coordination of oversight systems of international financial regulations has shifted from the G-8 to the G-20.”

The G-20 Summit has produced some results in its four meetings to date. To begin, the nations agreed to coordinate on expanded spending and monetary policy and to eschew protectionism amid a severe slump in the global economy in 2008 and 2009, thus averting a severe depression like the Great Depression in the 1930s. The summit also generated some results in terms of creating financial regulations to strengthen capital soundness in the large financial organizations of developed countries, which had been the principal cause for the financial crisis.

However, as the global economy has escaped from crisis in 2010, the pursuit of the initially agreed-upon reform plans has become less transparent, primarily due to objections from developed countries. A case in point is the reform of the IMF.

Some proposed a plan for reducing the absolute influence of the United States and excessive representation rights for European nations and increasing the voice of emerging nations, but a consensus could not be reached because of objections from developed countries. Others also proposed plans to regulate large Wall Street financial institutions and speculative capital such as hedge funds, but no real agreement was reached due to the entrenched interests of developed countries hoping to protect their respective financial industries. In the case of a global financial safety net, key reform plans such as multilateral currency swaps among central banks failed to come to fruition due to objections from some developed countries.

The formal agenda of the Seoul summit covers five broad areas. Three of these were discussed at previous meetings, namely coordination of macroeconomic policy, financial regulation reform, and reforms to the IMF. Two others are new additions, namely building a global financial safety net and a development agenda. The issue of exchange rates is to be discussed under the category of macroeconomic policy coordination.

The new agenda items were proposed by South Korea as chair nation. The purpose of the global financial safety net is to prepare for a potential crisis that might emerge when a financial shock prompts foreign investors in emerging countries to pull their money out all at one, while the development agenda is intended to support development in underdeveloped countries through improvements in areas such as infrastructure and human resources.

“We are not opposed to the agenda items the developed nations bring with them,” said Lee Chang-yong, head of the planning and coordination team for the G20 Summit preparatory committee. “We wanted to link them with the perspectives of emerging and underdeveloped nations.”

“As we are the first chair nation that is not a G-7 country, there is likely no other country that has developed an agenda with as much care as South Korea.”

However, a number of observers have contended that South Korea, as chair nation, should have presented agenda items that represent the perspectives of emerging and underdeveloped nations more aggressively. An example of this is the Tobin tax. This system would apply a tax to limit the inflow and outflow of speculative capable, making it beneficial for small countries with open economies like South Korea. However, the South Korean government declined to even put it on the agenda, viewing the chances of its adoption as realistically slight.

Recently, observers have expressed concern that with the current antagonism between the “G2” of the U.S. and China over currency value, it may be difficult to generate any agreement even on the other G20 agenda items, presenting a stumbling block to the future progress of the summit.

  

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