KOREA FOCUS

 

The second G20 Summit was held in London on April 2 to discuss stability, growth and jobs as the U.S.-originated financial crisis continued to unfold in markets and economies. The summit checked the implementation of agreements reached at the initial G20 Summit held in Washington in November 2008 and attempted to work out detailed action plans so that nations can better cope with the ongoing turmoil and find ways to prevent recurrence of a global economic crisis.

 

There were worries before the summit that new agreements might be difficult to achieve due to differences between the United States and Europe. The former is championing stimulus measures based on considerable fiscal spending and the latter is emphasizing stronger financial regulation and supervision. But the summit managed to produce a set of significant agreements, which some described as “historic.”

 

Yet, it may be more appropriate to regard the outcome as a “deferred success” because a final assessment can be made only after the wide-ranging agreements are implemented. Uncertainty remains about the Chinese proposal of changing the basic currency and the question of reorganizing international financial institutions as well as the availability of funds needed for the various actions for recovery.

 

Korea participated in the preparation for the London summit as one of the “management troika” along with Britain and Brazil. Seoul faithfully played the role of bridging the positions of advanced and developing nations and efficiently combined an array of demands by G20 nations for a balanced agenda, thereby proving its preparedness to be the host of the 2010 summit.

 

Noteworthy was the inclusion of a trade clause in the “Leader`s Statement.” The clause demands the World Trade Organization (WTO) monitor possible moves to establish trade barriers. Korea pressed for the clause, arguing that the current financial crisis should not be allowed to harm international trade because it promotes global economic growth. In addition, Korea suggested ways to prevent insolvency of financial institutions, applying its experiences during the 1997-1998 crisis. Some of these propositions were included in the joint declaration.

 

This paper intends to assess the outcome of the London summit from the viewpoint of international politics and economics and offer an outlook for the future of the G20 Summit to remind Korean authorities what they should consider as they prepare for a potential 2010 summit in Seoul.

 

 

The London summit was held about six months after the first G20 Summit. Participating nations included the G7 countries, South Korea, China, Russia, India and Brazil. The International Monetary Fund (IMF), the World Bank and the United Nations also were represented. The London summit adopted the Leaders` Statement of 29 points and three auxiliary documents on strengthening financial systems, providing funds through international financial organizations, and action plans.

 

1. Restoring Growth and Jobs

 

The participating governments agreed to boost fiscal spending by a total of $5 trillion by the end of next year to support goals of raising output by 4 percent, creating millions of jobs and accelerating the transition to green economies. The IMF will regularly assess steps taken by individual governments and the global actions required.

 

2. Strengthening Fiscal Supervision and Regulation

 

The G20 nations agreed to establish the Financial Stability Board (FSB) by expanding the functions of the Financial Stability Forum (FSF). The FSB will collaborate with the IMF to provide early warning of economic and financial risks and to craft appropriate responses. New oversight measures will be taken on hedge funds and credit rating agencies and tough new principles will enforce pay and compensation levels for corporate executives to emphasize social responsibility of all firms. Action will also be taken against tax havens.

 

3. Strengthening Global Financial Institutions

 

The summit agreed to make available a total of $1.1 trillion of resources through global financial institutions, particularly the IMF, to support growth in emerging markets and developing countries. The G20 supported an increase in lending of at least $100 billion by multilateral development banks (MDBs) to low- income countries. The resources available to the IMF will be increased by up to $500 billion to reach $750 billion and a further $250 billion will be injected into the world economy with new Special Drawing Right (SDR) allocations.

 

Along with substantial increases in financial resources the summit also agreed to strengthen the role of international financial institutions by reforming their mandates, scope and governance as well as ensure greater participation by emerging and developing economies.

 

4. Resisting Protectionism and Promoting Global Trade and Investment

 

The G20 reaffirmed its pledge from the first summit that it will refrain from erecting new barriers to investment or trade, extending the ban for a year. The WTO, together with other international bodies, will monitor and report publicly on individual nations` adherence to the pledge on a quarterly basis.

 

5. Ensuring Fair and Sustainable Recovery for All

 

The G20 decided to provide $50 billion to support the social safety net, boost trade, and safeguard development in low-income countries. Additional resources from sales of IMF gold will be used to provide $6 billion additional finance for the poorest countries over the next 2 to 3 years. In an effort to overcome the economic crisis and at the same time protect environment, the participating nations agreed to make the best possible use of fiscal stimulus packages to invest in attaining a sustainable “green recovery.”