SEOUL, SoKo — G-20 world leaders meeting in Seoul, South Korea, concluded the summit late Friday by issuing a joint communiqué, with no specifics, agreeing only in general terms to curb “persistently large imbalances” in saving and spending. But deep divisions, especially over the US-China currency dispute, left G-20 officials negotiating all night to draft a watered-down statement for the leaders to endorse, keeping alive a dispute that raises fears of a global trade & currency war, and fears of rising protectionism among nations. Despite the setback in reaching substantive consensus, perhaps the biggest ‘winners’ emerging from the G-20 summit were (1) emerging market nations, and (2) the International Monetary Fund (IMF). The G-20 leaders ratified changes in the governance of the IMF that will expand representation of emerging market nations, endorsed the expansion of IMF lending programs that can be used by G-20 economies facing a liquidity crunch, and empowered the IMF to spearhead the process of fixing the global imbalances. “This was more a G-20 of debate than a G-20 of conclusion,” said Dominique Strauss-Kahn, the IMF’s Managing Director. He also said the G-20 had moved from a crisis phase in 2008, when nations agreed to stimulate their economies, avoid protectionism and overhaul global financial regulations; to a post-crisis era of difficult choices. One of the central points of contention between the G-20 economies is the question of whether domestic recovery should be driven by economic stimulation such as government spending, capital investments and monetary policy such as quantitative easing – favored by the US; or by severe fiscal austerity measures, such as deficit reduction and spending cuts – favored by Germany, among others. The assessments to be conducted by the IMF are likely to examine not only currency exchange rates and trade balances; but also important global economic issues such as labor costs, savings rates, financial markets regulations, trade practices, capital controls, investments & commodities manipulation and volatility. Using those guidelines, the International Monetary Fund will then conduct an analysis of the “root causes” of the imbalances and the damage that they cause by the next G-20 leaders’ meeting, to be hosted by France late next year.
On the more contentious issues, despite an aggressive lobbying effort by the US advocating specific targets to address the current account deficit, the group of the world’s 20 largest economies rejected efforts to pressure China on its currency policy; and deferred until next year tougher decisions on how to identify and fix the so-called ‘global imbalance.’ The joint statement – the policy outcome of the two-day summit – fell way short of US demands for numerical targets on trade surpluses and deficits. However, the policy document reflected a consensus among G-20 members that long-term global economic patterns — such as an unsustainable debt burden, and over-consumption which leads to trade deficits; and China’s reliance on exports to support its economy — were no longer sustainable, and ultimately harmful to maintaining global economic balance. The watered-down language on global imbalances reflected the clout of China, which successfully resisted pressure for its currency to appreciate quickly; and influence by Germany & Brazil, both of which insisted that an examination of global imbalances include domestic fiscal, monetary & budget policies of each nation, and not just trade surpluses and deficits – a statement that subtly, but directly, implicates US economic dynamics. The G-20 leaders largely endorsed, but added a timeframe, to an approach to the global imbalances that finance ministers, including US Treasury Secretary Tim Geithner, negotiated last month at a meeting of G-20 finance ministers in Gyeongju, South Korea.
No nation should assume that their path to prosperity is paved simply with exports to the United States. – Pres. Obama
Meanwhile, China’s president, Hu Jintao, pledged to shift, over a timeframe of its choosing, the Chinese economy away from reliance on exports and toward domestic consumption — a strategy urged by the US, its closest European allies and most global economists. President Obama during his press statement outlined that he had raised theissue of China’s exchange-rate policy with Mr. Hu and that the US will “closely watch the appreciation of China’s currency.” Obama, apparently frustrated that US global economic priorities stalled by disagreement among G-20 members, pointedly warned, “No nation should assume that their path to prosperity is paved simply with exports to the United States.”
Despite the summit’s measured outcomes, President Obama, looking for the silver lining, called the agreement significant, even if not as dramatic or far-reaching as the US officials had hoped. “Instead of hitting home runs, sometimes we’re going to hit singles,” the President said. “But they’re really important singles.” In his prepared press statement, President Obama also used some of his strongest language to date on China’s role in the world economy, making it clear that he expected Beijing to assume part of the burden of leadership. “Precisely because of China’s success, it’s very important that it act in a responsible fashion internationally,” Obama stated, adding that “the issue of the Renminbi is one that is an irritant not just to the United States, but is an irritant to a lot of China’s trading partners and those who are competing with China to sell goods around the world. It is undervalued. And China spends enormous amounts of money intervening in the market to keep it undervalued.” Like Mr. Obama, other leaders tried their best to put the compromise in positive terms.
“Not heroic, but good and steady progress,” said the British PM, David Cameron. Or as the French president, Nicolas Sarkozy, put it: “The Seoul agreement is better than disagreement.”
Canada’s prime minister, Stephen Harper, said that currency and trade imbalances were not going to be fixed right away. “It’s fair to say we didn’t resolve those issues here,” he said. “These are not going to be easy issues to resolve, but I think we’ve got everyone talking the same language, everyone understanding longer term what has to be done.”
Sources: Reuters, AP, Economic Times of India Photo: SeoulSummit.kr
