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Prospects for the G20 Seoul Summit

John Kirton
Co-director, G20 Research Group
October 23, 2010

The fifth G20 summit, taking place in Seoul, Korea, on 11-12 November 2010, stands out as a significant event in several ways. It is the first time a G20 summit has been held in Asia, after two in the United States and one each in Britain and Canada. It is the first time the G20 summit has been hosted by a rapidly emerging economy, rather than by an established G8 power of the past. It is the first time the G20 summit has beendesigned and delivered in tandem with the Asia Pacific Economic Cooperation leaders’ meeting, taking place immediately after the Seoul Summit on 13-14 November in neighbouring Yokohama, Japan. It is also the first time the G20 summit has been held in a region where the Cold War has not ended, and where a hot war could break out at any time. The host is a democratic, developed polity devoted to open trade and now a member of the Organisation for Economic Cooperation and Development. The Seoul Summit comes with a major G20 business summit and a pre-summit scholarly conference, and takes place just after the first meeting of G20 parliamentarians, all bringing civil society into G8 governance in a collective way.

The Seoul Summit comes at a critical time. The fragile global recovery now underway, the European financial crisis that erupted in late spring and the threat of a looming ‘currency war’ all need careful management. Leaders must convince the new American Congress elected on 2 November that good growth and jobs will soon return. The advanced economy leaders must show suspicious markets eyeing deeply indebted European countries and publics protesting painful austerity measures in France and Britain that they remain committed to the medium-term fiscal deficit and debt reduction targets they prominently promised at their Toronto Summit on 26-27 June 2010. And with the prospect of major quantitative easing in the United States and Japan, the reality of an undervalued Chinese renminbi and recent capital controls in Brazil and other consequential countries, G20 leaders must move back from the brink of what could become a genuine, global currency war.

They are likely to do enough of this to stave off a new crisis and keep the momentum of G20 cooperation alive. Their balanced macroeconomic message from Toronto will be bolstered by taking their Framework on Strong, Sustainable and Balanced Growth and its Mutual Assessment Process to the next level of detail and determination, with all G20 members credibly committing to making the broad array of adjustments necessary for all to be better off. With China again showing greater exchange rate flexibility, as it did on the eve of the Toronto Summit, and with the US delaying its judgement on whether China is manipulating its currency, the spirit of collective responsibility has started to surface again.

With macroeconomic crisis and confrontation contained, the Seoul Summit will focus on delivering the two biggest items on its built-in agenda, on domestic and international finance. Leaders will politically approve the new rules on the quantity and quality of bank capital, liquidity and leverage that the Basel Committee on Banking Supervision crafted in mid September on the G20’s behalf. Leaders will guide work on systemically significant financial institutions, cross-border resolution regimes and derivatives, and address credit rating agencies, accounting standards and other related issues, too. They will respond to the predictable proposals for new bank levies and international financial transaction taxes in ways that deflect populist pressures but do not damage the economic recovery and the confident, capital-rich financial system on which it depends.

The second, far more difficult challenge is to complete the promised shift of 5 per cent of the quota share of the International Monetary Fund (IMF) to the rapidly rising emerging economies from Asia from the declining, established continental European ones. This must be done in a way that the legislatures of all IMF members, including coalition governments in democratic polities that will lose influence, can ratify back home. Here the Europeans have been slow to make the necessary accommodations, even as the Americans have used their dominant position in the IMF to induce them to move. Making such a constitutional change in a zero sum game is what only leaders can do. They will do what is necessary at Seoul to avoid breaking their bargain with a patient China, India and Brazil and to show that their G20 is genuinely, as it proclaimed at Pittsburgh in 2009, the permanent, premier forum for their international economic cooperation in the world.

Less likely is progress on the long overdue Doha Development Agenda of multilateral trade liberalisation, despite the activism of World Trade Organization head Pascal Lamy and the free trade convictions of G20 host Korean president Lee Myung-bak. Similarly, mobilising climate finance will be very difficult, as leaders will be tempted to accept China’s insistence that the subject be left to the United Nations and its conference in Cancun, Mexico, coming soon after the Seoul Summit. Little beyond stock taking and setting up for the French-hosted G20 summit in 2011 is likely on other important issues, notably food security and price volatility, Haitian reconstruction, corruption and the control of heathcare costs coming largely from chronic and non-communicable disease. However President Lee’s impressive credentials as an environmentally committed leader at home and abroad could see Seoul make important progress in eliminating fossil fuel subsidies more rapidly and in fostering green growth as a whole.

Some success has already come on Korea’s two additions to the G20’s inherited agenda. On financial safety nets, the IMF has responded to meet the need in an appropriately multilateral way rather than a regional one. Korea’s commitment to development has also helped the Millennium Development Goals move ahead at the United Nations review summit in September. Seoul will define new principles and an action plan, drawing on Korea’s own experience in generating growth through instruments other than public aid.

The Seoul Summit has thus done much good even before it begins. This provides a firm foundation for meeting the formidable challenges the leaders will face on site. By preventing potential crises, advancing macroeconomic policy, mutual assessment and adjustment, delivering banking and IMF reform, and promoting ecologically sustainable development, the leaders will show that their G20 is a club of equals that genuinely serves as the premier forum for economic governance, for both themselves and for the world as a whole.

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