Reports of the G20 Seoul summit differ but invariably they complain that “there was no meaningful agreement on global balances”.
This played into the dominant narrative — “since the crisis the G20 summit hasn’t achieved much. Currency wars will continue.”
There are two problems with this. The first is that no one describes what a “meaningful agreement on global balances” would be. Was there a stronger approach to imbalances that was implementable?
The United States proposal that countries limit trade surpluses or deficits to 4% of GDP was unconventional and it was introduced late in discussions by finance ministers. Apart from practical difficulties about how such targets would be applied, the proposal raised fears about the kind of speculative activity that would be elicited.
The alternative was to establish a set of indicators of balance/imbalance on a country-by-country basis that would be evaluated by a “neutral” party, such as the International Monetary Fund. This was agreed to.
Also, a range of macroeconomic indicators was included in the balance/imbalance set, not only international trade data, which satisfied those like China who argued that underlying structural issues, not only currencies, were important. But the language on the pace of the introduction of this new system is annoyingly ambiguous.
The first assessment “will be initiated and undertaken in due course under the French presidency”. Does “undertaken” mean completed? Who knows?
Probably not. But the fact is that all G20 countries have agreed to subject themselves to external scrutiny in the interests of the world economy as a whole. This is a reasonably big step forward.
‘Meaningful agreement’
The second problem with dismissing the summit is that there were many other important things agreed to at Seoul that are as important as a meaningful agreement on global balances, for example, the agreement to reform the IMF to represent developing countries more effectively.
This was announced at a G20 finance ministers’ meeting, so it is certainly a credit to the G20 after years of delay in the IMF. There is a commitment to tighten controls on “too big to fail” financial institutions.
They will be held to higher standards, beyond Basel III. In addition, the G20 agreed to ask for a report from the Financial Stability Board (FSB) on “shadow banks”. These are financial or commercial institutions that behave like banks but are currently beyond the control of banking supervision.
There is also a commitment to investigate the impact of trade in commodity derivatives. Some believe that the food and fuel price spikes three years ago were caused by these derivatives.
Besides finance, the agreement on trade was important. There is a strong commitment to complete the Doha development round next year, “built on the progress achieved” so far, which is favourable to developing countries.
New commitment and enthusiasm
The Seoul summit introduced an entirely new commitment to support Africa in its efforts to break down internal trade barriers. Regional integration in Africa is now an agreed focus for the G20.
G20 leaders were enthusiastic about the launch of a development agenda for the group. It will now have on its agenda strategies to support economic development in developing countries, and in low-income countries in particular.
Some of the commitments in the Seoul Development Consensus for Shared Growth, as it is called, are support for infrastructure projects, a focus on food security and food prices, support for strengthening tax systems in low-income countries, financial inclusion for poor individuals and small and medium enterprises (SMEs) and social protection for the poor in low-income countries.
While the G20 development agenda supports the social objectives of the millennium development goals, it focuses on the economic growth that will underwrite social progress.
The development working group (DWG), which South Africa co-chairs with France and South Korea, will report on progress to leaders at the French summit in November 2011.
There are more details of these and other commitments in the leaders’ declaration and the summit document, which not many of the pundits commenting on the outcome seem to have read.
My view seems rosy in contrast with the conventional view, the dominant narrative, which is driven by whether the United States’s apparent objectives were achieved or not. But, compared with the disastrous international engagements of the 1920s and 1930s, documented by Liaquat Ahamed in Lords of Finance, the G20 is not doing too badly.
Alan Hirsch, a senior government official, was a negotiator in Seoul