Global economic framework

Finance ministers and officials from central banks of the world’s 20 major economies gathered in the southern port city of Busan last week for a two-day conference. The meeting marked Korea’s first official event as the chair of this year’s G-20 Summit, which will be held in Seoul this November.

The Busan conference was held amid growing fears that the global economy is racing toward a “double-dip” recession as European debt woes ripple across the world, which is still on the mend from a Wall Street-triggered financial meltdown.

The leading officials on hand faced a host of difficult tasks. They tried to map out a solution to build a safety net that will prevent global meltdowns yet at the same time strengthen fiscal health. A financial safety net, in effect, amounts to tougher regulations. The United States, Britain and Germany suggested taxing banks for future bailouts, while most other countries are in favor of more moderate moves such as taxing just derivative trading.

Korea wanted to focus on regulating extreme migrations of foreign capital. It is contemplating a move to tax non-depository debt, including foreign borrowings, at banks. As a chair country, Korea made efforts to steer the meeting through differing views and help engineer a solution that will bring stability to global financial markets.

The recent Greece-triggered debt crisis in Europe has created yet another issue for the G-20 to address. The work doesn’t simply end with fiscal belt-tightening, as the process of righting the global ship requires scrutiny as well.

If all nations resort to austerity measures to strengthen fiscal health, the global economy may slip into another downturn or a prolonged recession.

So it’s better if all countries can come together to agree on a solution that involves coordination and cooperation. To put it another way, countries with more leeway should maintain their economic stimulus measures while those with heavily indebted economies should seek to aggressively scale back budgetary spending.

Establishing a financial safety net and fiscal soundness is a structural task that can take a long time to pan out, and market circumstances differ in each nation. The G-20 should look to provide a bigger framework instead of enforcing uniform guidelines. To solve an intricate problem, it is best to address it by one step at a time.

All parties should put their heads together and seek an incremental approach to solve the current problems. That represents the best way to ensure productive results at November’s summit. We also must seek to represent our own market realities and exert the best possible leadership in the upcoming G-20 events.