Guest Author: Il SaKong, Chair Korea Summit Coordinating Committee
Since its inception in the mid-1970s, the G7 acted as if it were the informal global steering committee for global economic and financial issues. But over the last couple of decades many considered the G7 lacked political legitimacy because it did not include the major emerging players in the world economy. These critics rightly claimed that although the G7 was only an informal global steering committee, it needed to reflect the shift in global economic power that has taken place over recent decades.
Last November, in the midst of the unprecedented global financial and economic crisis, the G20 Summit—instead of G7—was held in Washington. On the agenda was how to deal with the current crisis and identifying ways of preventing a recurrence in the future. The Washington Post heralded the first G20 Summit as marking a ‘historic power shift.’ Without the participation of new major players, global financial and economic issues cannot be properly addressed.
There have been three G20 Summit meetings since. The meetings in Washington, London and Pittsburgh have been quite effective in countering the current financial and economic crisis with well-concerted global cooperation in implementing macroeconomic policies, reforming the international financial institutions as well as the financial regulatory and supervisory regime, and resisting protectionist trade measures. Without such endeavors, the crisis could have been much worse.
The G20 process since November last year has proved wrong the many who said it is too unwieldy to be effective. The G20, accounting for more than 85 per cent of the global GDP and being a group of systemically important advanced and emerging economies, is more representative and inclusive, and therefore more politically legitimate and operationally effective than the existing G7/8. For these reasons, the G20 leaders in Pittsburgh decided to make the G20 the premier forum for international economic cooperation. Furthermore, the leaders institutionalized the G20 Summit process by agreeing to hold the Summit annually from 2011. It was indeed a historic event for new global economic governance.
There is no time to be complacent about the achievements of the three Summit meetings. We must ensure that the leaders’ agreements are being followed through to lead the global economy out of the current crisis and to find concrete policy measures for strong, sustainable and balanced growth after the crisis. In this sense, 2010 will be a critically important and testing year for the G20 to consolidate its position as the premier forum for international economic cooperation.
With the unprecedented globally concerted policy endeavors, the world could avoid a ‘Depression-sized’ global recession. We already see signs of a global, though weak, economic recovery.No wonder there are voices calling for the implementation of exit strategies, unwinding the extraordinary policy measures taken so far.
It is worth noting however, that the anemic current recovery is primarily led by the public sector. Private consumption and investment have yet to fully respond.
For this reason, the G20 leaders in Pittsburgh agreed to continue to implement stimulus policies until a durable recovery is assured. In this context, the experience of the US in the 1930s and Japan in the 1990s are worth noting.
What is equally important is that we should do so within a globally concerted framework, just as we did when the stimulus packages were introduced. Of course different economic conditions in individual countries will require varied timing of exit strategies. I do not think we need a ‘one size fits all’ exit strategy. I strongly believe that a set of general principles for exit strategies should be agreed on among the G20 countries to provide guidance to individual countries. The G20 finance ministers meeting in St. Andrews last weekend put forward their recommendations with that in mind.
The leaders in Pittsburgh decided to hold the G20 Summit twice next year, first in June in Canada and then in November in Korea. Considering the current global economic circumstances, the decision is well taken.
By June some countries may need to have a fully implemented exit strategy. For other countries continuation of stimulus policies may be necessary.
At the November Summit in Seoul, leaders may primarily want to focus on major policy issues for the intermediate to long term global economic management toward strong, sustainable and balanced growth.
Obviously, the topic of re-balancing within the context of the G20 Framework that was agreed on in Pittsburgh should be discussed at the June Summit. But the subject will also need to be taken up in the November Summit.
Reform of the international financial architecture also needs to be integrated into the discussion of re-balancing to provide financial safety nets, particularly for small open economies. This would reduce their incentives to generate surpluses and accumulate foreign reserves as self-insurance.
Certainly, the reform of international financial institutions will be another important agenda item for both the Canada and Korea meetings. Since leaders decided to rely more on the expertise of the international financial institutions, they need to be made more credible and legitimate with proper reform measures.
Leaders cannot avoid recommitting to early completion of the Doha Development Agenda and continued resistance to protectionism. They need to maintain their political commitment to resisting protectionist measures of all kinds.
Besides, climate financing, food security, energy security and other development-related issues could be on the agenda.
It is also critical to get support from non-G20 countries, most of which belong to the emerging and developing world, to make the G20 Summit process credible. For this reason alone, leaders should pay special attention to development issues. Rebalancing needs to include correcting the development gaps between the advanced and developing economies, on top of remedying the macroeconomic imbalances.
Certainly Korea is well positioned to bridge the two worlds. While Korea is a member of the OECD, it still has first hand development experience and a vivid memory of the pains and agony of that process. Secondly, Korea recently went through a currency and economic crisis because of its own mistakes and successfully overcame it—faster, in fact, than other crisis-hit countries. Naturally, Korea has a lot to share with the emerging and developing world.
We have to put our best efforts into making the November G20 Summit another success and an impetus towards institutionalization of the G20 Summit process.
The very fact that the G20 leaders designated Korea to chair the G20 Summit next year reflects their confidence in Korea’s leadership to help make the process successful. With their trust and confidence, we will do our very best in cooperating not only with the G20 countries but also with the rest of the world to live up to these high expectations.