Reinventing the G-20

As they wrapped up a two-day conference in Seoul last week, leaders of 20 wealthy and emerging countries pledged their “unwavering commitment to cooperation” in an effort to create “strong, sustainable and balanced growth” in the global economy. The so-called Seoul Action Plan, reached through a last-minute compromise to resolve currency disputes among key members of the Group of 20, was supplemented by specific commitments from various countries.

Following overnight negotiations by vice finance ministers that lasted until daybreak, leaders wrangled over the final statement in closed-door negotiations. The challenge involved finding the right wording to present a united front on moves to enhance exchange-rate flexibility and rebalance growth.

The leaders reaffirmed an agreement reached by finance ministers in Gyeongju last month to move closer toward market-determined exchange rate systems, enhance exchange-rate flexibility and refrain from competitive devaluation. Reflecting complaints and concerns over a capital stampede in emerging markets as the result of quantitative monetary easing measures in the United States, the leaders also agreed to let the countries facing “increasingly overvalued flexible exchange rates” conduct “carefully designed macro-prudential measures.” On the thorny issue of narrowing trade gaps and global imbalances, G-20 nations agreed to establish a set of risk indicators and guidelines to assess and address concerns and dangers in these areas.

The Seoul conference underscored both the potential and limits of the G-20. The summit highlighted the organization’s role in steering the global economy, as nations were able to work together to coordinate policies and set common goals for the world economy. Yet when it came down to the nitty-gritty, G-20 nations couldn’t overcome their differences to craft concrete action plans.

The group must now reinvent itself so that it can steer the world economy toward common prosperity. The G-20 Summit in Seoul made several breakthroughs. Leaders, for instance, agreed to reform the International Monetary Fund, strengthen the global financial safety net and boost aid to underdeveloped countries. They were able to make progress in these areas because entities tied to the G-20 discussed the issues thoroughly in advance. With this in mind, we recommend that the G-20 establish a permanent secretariat office to set the group’s overall agenda and iron out differences to generate productive outcomes in summit talks.