|Yoon Jeung-hyun, Korea’s finance minister, announces the resolution of the foreign exchange issue at a weekend meeting of G-20 finance ministers and central bank governors in Gyeongju, North Gyeongsang. [YONHAP]|
GYEONGJU, North Gyeongsang - Korean officials believe next month’s G-20 Summit in Seoul will be successful thanks to an agreement made by the G-20 member nations this weekend in Gyeongju, North Gyeongsang, to call a truce on competitive currency devaluations.
The Korean government had been worried that the currency issue, if it continued to escalate, would derail the summit and remove any hope for the adoption of initiatives being pushed by Seoul, including the establishment of a global financial safety net linked to the revision of loan policies at the International Monetary Fund.
The so-called Korean Initiative was helped by the fact that the meeting of G-20 finance ministers and central bankers also agreed to restructure voting rights at the IMF, which would give more power to emerging economies, including China. Korean Minister of Strategy and Finance Yoon Jeung-hyun praised the currency agreement.
“With this agreement, I think that the spat over foreign exchange rates will come to an end,” Yoon said. “[The finance ministers] agreed to move toward more market-determined exchange rate systems reflecting economic fundamentals and to refrain from competitive devaluation of currencies.”
Observers said that Korean officials can take much of the credit for playing a behind-the-scenes role in achieving key compromises among the world’s major economies.
Linked to the currency agreement was a call by the G-20 countries to curb excessive trade imbalances. The United States, acting on an idea proposed by Korea, urged adopting specific targets that would limit a country’s trade surplus or deficit to 4 percent or less of its gross domestic product.
Although the targets were not approved at the weekend meeting, they could be discussed at the G-20 Summit next month. In the meantime, the IMF will be given a supervisory role to identify countries that have “persistently large [trade] imbalances,” according to a statement released by the G-20. One country that could be thrust under the spotlight is China.
Progress on resolving the currency issue was unexpected because the recent annual IMF meeting in Washington made little headway. The G-20 members also agreed on reforms to the IMF quota, which will promote the global financial safety-net agenda being led by Korea. The financial safety net would establish emergency IMF credit support for economies hit by sudden inflows or outflows of capital caused by external financial crises.
Emerging countries, in particular, have complained they are subject to capital volatility resulting from financial crises in the U.S. and Europe. Giving emerging countries more say in the IMF could increase support for the financial safety-net concept.
The G-20 agreed to transfer more than 6 percent of the IMF’s quota share to developing countries by 2012, including India, Russia and Brazil.