The Seoul G20 summit outcomes and implications for the global economy

Indeed, prior to the November summit, tagged “Shared growth beyond crisis” by the host nation, most observers had viewed the last G20 summit in 2010 as a ‘crucial vitality test’ for the global leaders. A part of this test was whether or not these leaders’ strategic national economic interests would take precedence over their international obligations to the whole world in general, and global economy, in particular. 

Going by the array of positive decisions taken at the summit, it seems the world leaders had passed this critical test with flying colors, as they have, in essence, agreed to adopt a certain set of universally accepted global standards that will help proactively indicate potentially ‘trouble spots’ in the world economy in the future.

Unprecedented striving toward compromises on sticky issues

Commenting on the decisions reached in Seoul, Russian President Dmitry Medvedev said the G20 leaders had demonstrated ‘unprecedented readiness’ for compromises at the summit. “We reached agreements on all the issues on the agenda, despite debates over certain aspects of the joint declaration. But I will say this straight: the readiness within the G20 to reach compromises on key issues was absolutely unprecedented.” 

“Most observers had viewed the November summit, the last G20 summit in 2010, as a ‘crucial viability test’ for the world leaders on their readiness to place global issues over national ones.”

One of these tenacious topics was the issue of the so-called ‘currency war’ currently going on mostly between the United States and China, often referred to as the G2, on one hand, and between the other G20 states and the G2 on the other. The bone of contention, put simply, is that most Western states, led by the United States, want China to significantly appreciate its obviously undervalued currency in line with the prevailing market forces, accusing it of intentionally keeping its Yuan undervalued to gain a competitive trade advantage on the international markets. However, Beijing has dismissed such accusations and stubbornly resisted all the international calls and pressures on it to upgrade its currency on the premises that such policy will hurt its exports. 

Similarly, there is no unity among the Western nations, as most of them, especially Germany, are also equally not very happy with Washington over its so-called policy of ‘quantitative easing’ of its economy, a strategy seen as a move to give the dollar a competitive edge on international markets. The situation has further been exacerbated by the FRS’ plan to intentionally devalue the U.S. currency further by pumping more funds, estimated at about $600bln, into the economy, so as jerk-start the local market, which has for far proved totally recalcitrant to all the ‘reanimation fiscal measures’ adopted by the Obama administration. 

Seen as a blatant manifestation of what experts have called ‘egoistic economic nationalism,’ both friends and foes have justifiably condemned Washington for using these questionable monetary-fiscal policies to boosting the attractiveness of its exports, whilst completely ignoring the glaringly negative global repercussions of such policies for other countries and their economies.

However, by calling for the avoidance of the so-called competitive devaluations, the Seoul summit has helped avoid a full-blown currency war that would have further destabilized international trade, the global economy, and hence, increased the probably of a double-dip recession. Specifically, the G20 leaders pledged to move toward market-determined forex rates and shun all forms of competitive devaluations. Besides, they also pledged not to pursue any forms of protectionist policies in their domestic economies. 

More unequivocal on this issue was Indian Prime Minister Manmohan Singh, who sees competitive devaluations as a manifestation of unacceptable global protectionism. “We must at all costs avoid competitive devaluations and resist any resurgence of protectionism in our economies,” he said. Echoing the same view, and hailing the positive resolution adopted on the competitive devaluations issue, Medvedev noted that the threat of a devastating currency war, which was imminent prior to the Seoul summit, “became significantly lower after the meeting, a good reason to look forward to the future with more optimism.” 

Other key decisions at the Seoul G20 Summit 

The Seoul G20 Summit’s second key achievement was the finalization of the reformation strategy for the IMF. Whilst the final details have been left for the G20 finance ministers to hammer out, one of the Seoul agreements sanctioned increasing the shares of the emerging countries, notably, the so-called BRIC states — Brazil, Russia, India and China — in the IMF’s charter capital, a compromise that reflects the ongoing ‘tectonic shift’ in the balance of global economic power. Under the reform arrangements, about 6% of the IMF’s voting shares will be given to the dynamically developing countries, led by China, which will become the IMF’s third-biggest member at the end of the reform. 

In another nod to the growing clout of the developing countries, the G20 agreed that these emerging economies, which have increasingly overvalued exchange rates, and consequently, face an undue burden of forex adjustments, would be justified in taking ‘carefully designed relevant prudential macro-economic measures’ to counter capital inflows. Another joint action agreed to by G20 was the adoption of a special plan to combat corruption among government officials. Briefly put, the G20 agreed to fight corruption not only on a national basis, but also jointly at the international level. In other words, government officials indicted on corruption charges will henceforth be denied visas and asylums in the G20 states. 

Another key decision taken at the summit, whose direct implication for the global economy was largely overlooked by all, was the agreement to change the G20’s current twice-a-year meeting format to an annual format. In practice, this means the global crisis, which prompted the launch of the G20 alliance in 2009 at the height of the global financial meltdown, and has since been held twice a year as global leaders were ‘forced to manual management of their devastated national and global economies to avoid global bankruptcy, has finally come to an end. In other words, this means that the global economy has shifted away from the gaping abyss that had loomed it in the face since the global crisis erupted in summer of 2008. 

Obama defending his divisive anticrisis economic policies

Obama — commenting on the agreements reached at the Seoul forum and also his highly divisive anticrisis measures to jump-start his domestic economy by policies that have angered both friends and foes — stressed that a strong United States is essential for a global economic recovery as it is  a ‘huge engine’ that will impel other  economies to grow. He also praised the compromises and joint actions taken at the summit as ‘a sign indicating a readiness’ among the global leaders to move forward and jointly meet common challenges. 

“By calling for the avoidance of competitive devaluations, the Seoul summit has helped avoid a full-blown currency war that would have further destabilized the global economy, and hence, increased the probably of a double-dip recession.”

Airing a similar view, UK Prime Minister David Cameron called the summit’s agreement to work towards a set of ‘indicative guidelines’ for elimination of trade distortions a positive step. “The key thing is that this issue is being discussed in a proper multilateral way without resort to tit-for-tat measures and selfish policies.” The Seoul summit’s results were summarized at a press conference by the event host, Lee Myung-bak, the South Korean president, calling the global gathering a successful affair, as it achieved meaningful outcomes, including a unanimous pledge to pursue ‘strong and sustainable growth’ in their national and global economies. “For me, the most remarkable progress was that the global leaders actualized the results of the previous G20 meetings into a concrete action plan at the Seoul summit, including the agreement to implement market-determined forex policies via the ‘Seoul Action Plan’.”