hankyoreh

entitled “World Economy and Framework

By Ahn Seon-hee, Staff Writer

The G-20 Summit in Seoul ended without any significant progress made in resolving the “currency war.” The leaders at the summit failed to agree on any concrete measures for resolving current account imbalances and concluded the summit with a simple agreement to discuss matters again in the first half of 2011. The United States, which faces a vast current account deficit, attempted to pressure China into reducing its current account surplus with the United States by increasing the value of the yuan, but China countered that the United States should work on addressing its own issues.

On the proposed current account guidelines, the only agreement reached by the leaders was to have the International Monetary Fund (IMF) develop a specific plan and to discuss the course of action in the first half of 2011. They reached no clear agreement over any specific deadline for future agreement. The wording used with regard to exchange rates was nearly identical to that seen in the communique from the Gyeongju finance ministers’ meeting. There, ministers reached an agreement to form somewhat loosely structured “current account guidelines,” but the summit meating failed to generate any specific details, and they delayed discussions until 2011.

Some analysts interpret the additional wording about “enhancing exchange rate flexibility” as stressing currency appreciation for China and other emerging nations, but this too is a basic expression that has been included since the Toronto summit.

During a press conference following the summit, President Lee Myung-bak said, “It is noteworthy progress that we managed to agree on the establishment of guidelines and a specific timetable for its pursuit.”

However, this was essentially an indication of the large difference of opinions among leaders, since no deadline was fixed for the agreement.

On the whole, many interpreted the summit as having clearly shown the diminished voice of the United States. After initially presenting a “current account cap system” that designated specific values and had the different nations reduce any current account surplus or deficit to below those levels, the United States took a step back with the guidelines, but was unable to carry the reduced guidelines through effectively. Its attempt to pressure China by changing the wording from “refrain from devaluation” to “refrain from undervaluation” also came to naught.

Meanwhile, China rallied emerging nations, calling the U.S.’s second round of quantitative easing measures on Nov. 3 an “act of thrusting emerging nation economies into uncertainty in order to save its own economy.”

Germany, another country with a large current account surplus, formed a unified front with China against the United States. While maintaining a somewhat noncommittal stance, Japan did not lend support to the U.S. calls. Seoul was disheartened after actively taking the U.S.’s side, despite having a surplus of its own.

The leaders put additional discussions off until the first half of 2011, but the prospects are highly uncertain. Since certain countries could suffer devastating blows depending on the method adopted to resolve “global imbalances,” this is a battle where no one is willing to make any concessions.

Moreover, finding a solution will be even more difficult in a situation like the present where the United States is losing its dominance and China is rising to become one of the G-2 economies. With the Plaza Accord in the mid-1980s, Japan bowed to U.S. pressure and allowed rapid appreciation of the yen, but China stood its ground this time against the United States, insisting on “incremental revaluation.”

Also, while the then-G-5 nations of the United States, West Germany, Japan, the United Kingdom, and France all agreed on the U.S. solution with the Plaza Accord, many countries in addition to China are now making their voices heard this time, including Germany, Brazil, and Japan.

The communique also included a “Seoul Action Plan” with policy measures to be taken by individual countries for the continued growth of the global economy, as well as a “Seoul Development Consensus” with a multi-year plan for supporting the growth of developing and low-income countries.

It adopted regulations on the rapid inflow and outflow of capital as a formal agenda item, declaring, “We called on the...IMF and BIS [Bank for International Settlements] to do further work on macro-prudential policy frameworks, including tools to mitigate the impact of excessive capital flows.”

Please direct questions or comments to [englishhani@hani.co.kr]