THE WORLD’S MOST POWERFUL SUMMIT MOVES BEYOND CRISIS MANAGEMENT

The G20 Seoul Summit ended on November 12, 2010 after two days of intense talks among world leaders. The fact that the summit took place peacefully, without any violent protests from those opposing globalization or threats from North Korea, is strong evidence showing that the G20 Seoul summit was a success.

Most importantly, though, the G20 Summit has moved on from being a ‘risk management body’ after the 2008 global financial crisis to a “premier forum” for managing the global economic order as declared in the 2009 Pittsburgh summit.

With that overall observation in mind, the G20 Seoul summit can be analyzed from a number of perspectives.

First: Has the framework for international cooperation become any stronger? Although the exchange rate-related discussions were not formally incorporated into an agenda during the past one year period of preparation, many have shown their concerns that success or failure of the G20 Seoul summit will be determined by how the exchange rate dispute unfolds. However, the G20 Seoul summit successfully couched the problems arising from individual countries’ exchange rate adjustment within the global imbalance issue. This, therefore, reduced the possibility that countries will engage in currency war as a final resort. Also, by achieving consensus on making “indicative guidelines” as well as following the specific time line for the implementation of the suggested plan, the G20 Seoul summit was able to maintain a driving force for international cooperation. It will take a relatively long time to resolve the exchange rate problem in any fundamental way, because that resolution depends on addressing larger global trade imbalances as well as problems in the international currency system. The Seoul summit laid the early groundwork for that ultimate resolution by producing a “ceasefire” in the currency war and by initiating discussions on an ultimate “peace treaty”.

Second, Seoul saw the G20 evolve as an increasingly efficient forum for global collaboration on financial regulation and economic growth. This was because participants had the discipline to focus on issues addressed in previous summits.

One of these was IMF reform, including the transfer of two board chairs from European to the newly emerging market states, like India and China. Another such discussion led to the G20 accepting the Basel III agreements on financial regulatory reform. Taken together, those measures show how G20 participants are looking beyond the crises of 2008 to the management of future risks.

The economic growth discussion also saw the beginning of a new paradigm on economic development. The Korean government introduced the “Korean Initiative”, to widespread support from delegates. And the summit began discussions about a new Global Financial Safety Net, which aims to reduce the possibility of another financial crisis by easing the conditions required for countries to receive credit while increasing the overall size of the credit available.

For all of these successes, however, it is not clear that the G20 is actually becoming a more robust institution. During the process of preparing for the Seoul summit, organizers sought the opinions of many non-member countries. A Business Summit also functioned as an opportunity for outreach beyond conventional multilateral discussions. Now, a growing number of people, countries and organizations expect those initiatives to become a core part of the G20 process. The Seoul summit itself produced no agreement on that, however.

In order for the G20 to build a more solid foundation for its existence as a premier forum for international economic cooperation, a series of institutional innovations are urgently needed. Those include reaching an agreement on who will chair the meeting in the future as well as on the requirement for receiving an invitation from the host country to participate as a special guest. Also, it appears that the establishment of a Secretariat is necessary at this juncture considering that the G20 deals with a wide range of agenda items with the membership of three times the size of the G8. A Secretariat will meet the G20’s need for continuous monitoring capacity to strengthen accountability of the forum as well as need for archiving. The G20 now must decide how to realize these goals without creating a new, cumbersome bureaucracy. France, as the next chair country, declared back in August that it would consider establishing a Secretariat of the G20.We can, therefore, remain hopeful about the G20’s continuous development in coming years.

Viewing Korea’s remarkable performance in the safe and effective management as the chair country, the term “historic achievement” seems apt. In addition, considering that the Seoul summit resulted in maintaining the possibility for expanding the G20’s role, the Seoul summit can be assessed as an “unfinished success”.

By Lee Dong-hwi
Professor
Institute for Foreign Affairs and National Security

 

RELATED MATERIAL FOR THE WEEK OF NOVEMBER 15

BACKGROUND

The Group of Twenty (G20) finance ministers and central bank governors was created by the G7 in 1999, following the 1997 East Asian financial crisis as a forum to discuss key global economic issues. The G20 was created as a response to the financial turmoil of the late 1990s.  It was also designed to incorporate the newly emerging market states into the global economic discussions and governance.

The first meeting of the G20 leaders summit was held in Washington D.C. on the 14-15 November 2008 in response to the global financial crisis of 2007. At this Washington summit, G20 leaders agreed to cooperate in key areas to: strengthen economic growth; promote financial recovery; and reduce the risky behavior that brought on the global financial crisis. As a consequence the G20 sought to tackle financial reforms to prevent similar crises in the future. For all the collective efforts, four summits later, the G20 faces the challenge of transforming its own role from that of a short-term “crisis committee” to that of a permanent “steering committee.” The ability of the G20 to deal with increasingly complex and longer-term issues will determine likely its relevance to the global system.

The 2010 Seoul summit addressed several mid- to long- term issues. It saw to the successful resolution of prior commitments such as the IMF and financial regulatory reforms most particularly the work of the Basel Committee on Bank Supervision – Basel III. Furthermore, the G-20 reaffirmed its commitment to generating a framework for strong, sustainable and balanced growth.

To mitigate a potential currency war, the G-20 nations reached an agreement to “move toward more market-determined exchange rate systems”. A consensus was also reached to reduce excessive imbalances in surplus and deficit. Moreover, the G-20 agreed to assess persistently large imbalances against indicative guidelines. These guidelines, to be initiated and undertaken under French leadership, will be developed by The Framework Working Group (FWG) (co-chaired by India and Canada) with support from the IMF and other international organizations. According to French President Sarkozy, the FWG is scheduled to meet in Beijing China this coming spring.

At the Seoul Summit, the G20 agenda was expanded to include development issues. Under Korean leadership, G20 members agreed to pursue new initiatives of growth-oriented development and financial safety nets.

RELATED MATERIAL

  • At the close of each G20 Summit, G20 leaders release a communiqué outlining their goals and commitments. The communiqué for the Seoul Summit, released on Friday, November 12th, can be found here. The official website for the G20 Seoul Summit can also be found here.
  • The G20 Research Group at the Munk School of Global Affairs recently published its inaugural report on G20 compliance to the commitments made at the recent Toronto Summit, as well as reports on G20 accountability in the realm of global finance, as well as G20 progress on climate initiatives.
  • The Centre for International Governance Innovation, provides detailed commentary on an independent think tank based in Waterloo, provides detailed commentary on G20 summit proceedings.
  • See the Rising BRICSAM blog from Munk School Director Online Research, Alan Alexandroff for commentary on the G20 Summit.
  • Euronews aired video commentary on the Summit proceedings, including a wrap-up looking forward to the 2011 G20 Summit in France.
  • The Stanley Foundation engages in research on global governance issues, particularly the G20. The Foundation’s website includes an archive of resources related to the Seoul Summit.
  • The G20, with support from the Rockefeller Foundation and Ashoka’s Changemakers, announced the Small and Medium Enterprise (SME) Finance Challenge shortly after the Toronto Summit in June. The winners of the contest, who will divide over one-half billion US dollars between themselves, were announced  in the days leading to the Seoul Summit.
  • In addition to the G20 Leaders’ Summit in Seoul, global business leaders gathered on 10-11 November in Seoul as part of the Seoul G20 Business Summit, known colloquially as the B20. The Business Summit released a joint statement encouraging global business leaders to enhance their foreign direct investment efforts, engage in free trade, and adhere to new global financial regulatory reforms, among other initiatives.