G20 at Seoul: Change evolutionary but tangible

Jayatilleke DE SILVA

Two events attracted media attention last week. While young Chinese sportsmen and sportswomen were re-writing the country’s sports history in colourful Guangzhou Chinese President Hu Jintao was busy at the G20 Summit in Seoul. While the first event was unparalled in its splendour and youthful spirit it was the latter that was far more important for both China and the world at large.

The G20, a consortium of developed and developing nations was established in 1999 in the wake of the Asian financial crisis with a view of stabilizing the global financial system. After the Global Financial Crisis which erupted in September 2008 G20 shot into prominence as the leading group of nations that was entrusted with finding ways and means of recovering from the crisis. At its Pittsburg Summit G20 was designated the premier international forum for international economic cooperation in 2010.

Member states

The G20 member states are Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, S Africa, S, Korea, Turkey, United States and the EU. The G20 represents 90 percent of the global GNP and 80 percent of the world trade.

As far as the international media was concerned there was much adverse publicity to the event. They were speculating about currency wars and a possible impasse on trade agreements. There were even predictions of a head-on clash between the global economic titans - United States and China. Adding insult to injury there were also demonstrations outside the venue in Seoul in which several thousands participated.

While the West, particularly put pressure on China to devalue its currency, the action of the United States in injecting US $ 600 billion to its economy irked China and other nations that has huge reserves of US treasury bills and dollars.

Among other key issues that attracted attention at the Summit were the need for financial regulation at the global level, reform of the IMF including its governance and completion of the Doha round of trade talks.

World economy

Chinese President Hu Jintao addressing the Summit outlined a four-point plan framework for sustainable, balanced growth of the world economy. The four points were (1) to take full account of different national circumstances and stages of development respecting each country’s choice of the path of development policies (2) championing open trade and promoting co-ordinated development (3) reforming world financial system and promoting stable development and (4) narrowing the development gap and promoting balanced development.

Despite the contradictory nature of the demands put forward by developed and developing nations the Summit was able to arrive at a compromise in which both sides claimed satisfaction. True to the nature of such halfway arrangements there remain still grey areas the elimination of which have to be tested in practice.

The Seoul Acton Plan approved by the Summit speaks of specific commitment of nations in several policy areas. It says, “We recognize that while there are common factors, there is no single formula for development success. We must therefore engage other developing countries as partners, respecting national ownership of the country’s policies as the most important determinant of its successful development, thereby helping to ensure strong responsible accountable and transparent development partnerships between the G20 and Least Industrialized Countries”.

Developing countries

The similarity between this policy and that enunciated by President Hu Jintao is at once apparent. This is a far cry from the days when the G7 prescribed remedies in accordance with the Washington Consensus and decried independent paths of development.

The Seoul Action Plan also outlines the following measures;

n undertake macro-economic policies, including fiscal consolidation where necessary...enhancing exchange rate flexibility to reflect economic fundamentals and refrain from competitive devaluation of economies

* implement a range of structural reforms that assist and sustain global demand for job creation and increase potential for growth

* to enhance Mutual Assessment Policy (MAP) to promote external sustainability

* a modernized IMF that better reflects the changes in the world economy through greater representation of dynamic emerging markets and developing countries

* comprehensive quota and governance reforms in the IMF

* developing core elements of a new financial regulatory framework and

* properly concludes the Doha Round of trade talks.

The G20 approved the proposed six percent shift in the IMF quota system in favour of developing countries.

The G20 also decided to work further for a Macro-Prudential Policy framework that better reflect the perspectives of emerging market economies in financial regulatory reforms, strengthen regulational oversight of shadow banking, further work on regulation and supervision of commodity derivative market, improve market efficiency and integrity, enhance consumer protection, reform IMF, WB and build a more stable international monetary system.

Chinese delegation

The Chinese G20 delegation spokesman Ma Zhaoxu said the “Summit witnessed the framework of G20 shifting its focus from emergency response to long-term economic governance”.

From the perspective of the developing nations the biggest plus point of the Seoul Summit is the decision to give six percent additional quota and two seats in the Executive Council of the IMF to the developing countries. This will further strengthen their position in governing the world financial system.

What is more important is that the G20 leaders also specified a timeline, recommending a review of the quota formula by January 2013 and the next general review by January 2014.

President Obama has also hailed the outcome of the Summit but is facing much criticism at home for failing to get China’s consent for a devaluation of its currency.

There are also other finer points such as using new terminology that is more advantageous to developing countries that pursue an independent path of economic development. For example the Seoul communique speaks of ‘market-determined exchange rates’ instead of ‘market-oriented exchange rates’.

The changes achieved are evolutionary but tangible. Much depends on the actions of the two big powers in the world economy - the US and China. President Zarkosy of France admitted that they cannot order them to act.

Just as the taste of the pudding is in the eating it is only practice that would be able to give a final assessment of the Seoul Summit.