Emerging economics

The G-20 financial summit of leaders from the world’s largest economies, which was held in Washington, ended last Saturday after adopting a historic joint statement on reforming global financial markets.

The implementation of the short plan of action will be completed by the end of next March, and the three countries to chair the G-20 for the period - Brazil [2008], the United Kingdom [2009], and Korea [2010] - will be entrusted with the duty of drafting concrete plans of implementation. In addition, a second summit will be held prior to the end of April 2009 to review the interim process of implementation. Leaders also decided to make concerted efforts to expand short-term liquidity aid by the International Monetary Fund to newly emerging economies, with a view to stabilizing financial markets, reinvigorating economies and boosting domestic demand via appropriate monetary and financial policies.

They also shared their views on the need to comply with the basic principles of the market economy and prevent protectionism from spreading throughout the world.

Many were concerned that meaningful agreement would not be reached in this meeting, because the United States, the European bloc, and the emerging economies have different perspectives and positions over how to solve the financial turmoil and the prospects of market reform.

However, the 20 leaders succeeded in drawing up a concrete agreement beyond our expectations, mainly due to the fact that they share a serious sense of crisis. They found common ground and reached a mutually satisfying agreement.

European countries refrained from irking the United States by holding back a proposal on the sensitive issue of establishing a supranational financial supervisory body.

The United States has agreed on the necessity for a comprehensive reform of the Bretton Woods system, the U.S.-led global financial order, reflecting the changing reality in the world economy.

The prominence of emerging economies was one of the most remarkable changes in this meeting. Such countries could be seen as the victims of a dysfunctional global financial system, where developed nations made huge mistakes, while emerging economies suffered damage from a credit crunch and the lack of dollar liquidity. But the cooperation of emerging economies with huge foreign reserves is an essential part of resolving the financial crisis. Developed nations are facing a recession, with growth expected to contract next year. The global economy is in a pitiful situation and highly depends on the growth of emerging economies.

During the meeting, leaders of developing nations shared their views and delegates agreed on strengthening the voting power of emerging economies by expanding stakes in the IMF. These are key indicators that the economic bloc of emerging nations is enjoying growing prestige in the world. The restructuring of the U.S.-led global financial order is just the beginning of what will definitely be a lengthy process.

It is fortunate that Korea is part of the process as one to take the G-20 chairmanship. But more urgently, Korea should participate in the Financial Stability Forum, the core working group to lead the reform operation.

As the leaders of the G-20 have already agreed to open the door of the FSF - which consists of 12 nations, including the G-7 - to the economic bloc of emerging economies, we should not miss this opportunity.

In addition, in line with the shift in the global financial order, it is high time to be actively engaged in exploring the possibility of creating an Asian Monetary Fund led by Korea, China, and Japan, and introducing a new foreign exchange mechanism in East Asia.