[Seri column]Korea’s G?20 prioritiesAs the global financial crisis worsens, the Group of 20 financial and economic summit on April 2 will come at a critical juncture in determining the future course of the world economy. In its February global economic outlook report, the International Monetary Fund forecast a drop from 3.4 percent growth in 2008 to only 0.5 percent this year and a 3 percent recovery in 2010.
However, if the summit of leading economies does not produce a clear turning point for recovery, an early upward turn in the world economy will be unlikely.
The main topics for the G?20 will be protectionism and economic stimulus. G?20 leaders last November in Washington came out against protectionism. Nevertheless, trade barriers are being erected. In February, the United States Congress passed a stimulus package with a “Buy American” clause mandating the use of only U.S.-made iron and steel for public works projects. In the first two months of this year, emerging nations have invoked 38 regulatory trade measures that address anti-dumping, countervailing taxes and safeguards.
Against this backdrop, the upcoming summit therefore will be crucial in preventing protectionism from spreading. Lessons on how strong protectionist trade action at the outset of the Great Depression in the 1930s delayed global economic recovery should be remembered. As British Prime Minister Gordon Brown says, protectionism is the “road to ruin.”
As a co-chair country, Korea needs to play a leading role in preventing protectionism. It should strengthen collaboration with countries like Germany and China, where exports account for a high share of gross domestic product. Taking advantage of its position as a co-chair, Seoul could propose alternatives to existing protectionist measures. A sunset system would be one option. By yearend it could abolish crisis-inspired measures that violate World Trade Organization rules. Another option would be temporary retaliatory duties by G?20 countries on any WTO violators.
As for economic stimulus measures, they should be disclosed so foreign companies have an equal chance at business opportunities. Expanded opening of government procurement markets also should be encouraged, as well as funding for emerging markets to bolster worldwide stimulus. The latter will ultimately contribute to the recovery of exports in industrialized countries. Of similar importance is the need to seek out means to ease economic hardships among emerging economies stemming from withdrawal of investments by industrialized countries from these nations. For this, international collaboration is needed to help establish currency swap lines or restrict capital withdrawals from developing nations so as to ease foreign currency liquidity shortages in emerging markets. Finally, governments should prevent financial protectionism by seeing that nationalized banks’ fund management guidelines do not focus on local companies.
Tension and conflict will ensue between industrialized countries, including the U.S., Japan, Europe and emerging economies over voting power in international organizations. Industrialized countries will demand the latter inject capital into international financial markets and open up financial markets ahead of a bigger decision-making role, while emerging economies like China will demand more votes first. China accounts for 6.8 percent of world GDP and yet its voting power in the IMF is only 3.8 percent. Korea should also try to increase global influence through more voting power.
The key issue at the G?20 summit in Washington last November was strengthening regulations in financial institutions and markets. Three of the five principles announced were on financial regulation. In the April summit in London, the intensity of regulation will decrease somewhat due to the adverse effects of regulations on the world economy and U.S. opposition. In fact, discussions are under way to ease regulations, including the BIS capital adequacy ratio requirements of banks. Meanwhile, regulations on tax havens will see progress.
At the summit, Korea should prioritize issues and take a different approach in each issue. The priority for dealing with issues will be: first, protectionism; second, economic recession; third, reform of international organizations; and fourth, strengthening regulation of financial institutions and financial markets.
For Korea, the status of the G?20, which has been elevated due to the global financial crisis, will be a good chance to raise the nation’s international influence. As co-chair country of the G?20 until 2011, Korea will be positioned on the global stage. Former U.S. Treasury Secretary Robert Rubin emphasized the role of Korea in international efforts to prevent drastic capital outflows and protectionism. With the rise of China, Korea is also strategically important to the U.S. and Japan, making Korea play a role as a mediator or bridge. It can also play the role of mediator between industrialized countries and emerging economies in this global financial crisis based on its experience of overcoming the 1997 financial crisis.
Meanwhile, Korea should play a role in successfully leading this upcoming summit for a sustainable G?20 system.
*The writer is a research fellow, Global Studies Department, Samsung Economic Research Institute. For more SERI reports, please visit www.seriworld.org.
by Jung Moo-sup