[Viewpoint] One small step for the worldThe Group of 20 Summit in Seoul was a ceremonial success. But world leaders fell short of delivering a dramatic solution to the conflict over currency policies and trade imbalances. The Seoul Action Plan - a joint statement issued after a heated two-day conference - was full of watered-down pledges and innuendo to temporarily patch up discords and leave the real fixing for later.
Finance ministers of the 20 leading and emerging countries will come up with a set of indicators by the end of June 2011 to measure and fix imbalances. The pilot study will be presented at the next summit in France.
Few expected a detailed peace treaty on currencies like the Plaza Accord, and the U.S. proposal for setting numerical targets to narrow the yawning gap in current-account balances was rebuffed before it was formally put on the table.
What all leaders finally agreed on was to present country reports on various indicators that include not only current-account balances but other economic data, such as real effective exchange rates, foreign debt portfolios, gross domestic product and government debt, so they can try to identify global imbalances.
When they collectively pinpoint areas of massive imbalance, they will then try to figure out what caused them and how to fix them. None of these guidelines or solutions would carry any binding force because the G-20 lacks any enforcement mechanisms. They would literally be no more than “indicative,” leaving the currency imbroglio brewing on the back burner.
But this hardly means the Seoul meeting was futile, even considering the band-aid fix for currency conflicts. Exchange rates were not the only issue on the agenda and, in any case, they are too complicated to be resolved at an overnight meeting among world leaders. The truce, stopgap or not, has helped avoid a catastrophic showdown among major economies. Kissing and making up may have been the best face-saving choice for the members under the circumstances.
Thrusting such a thorny issue as currency on the agenda of a forum seeking a cooperative alliance to combat global economic problems was risky in the first place. The problem was addressed in order to prevent a skirmish between two economic powerhouses - the U.S. and China - from turning into a global dogfight.
No one expected a final cure from the meeting. A currency’s value is a composite of the underlying fundamentals of an economy. Each country has a different method of deciding exchange rates. It cannot be the answer to all problems.
Trade imbalances are the same. The current-account balance is the outcome of export and import activities driven by the individual structure and competitiveness of each economy. They cannot be blamed for being a root cause of problems in the world economy. No problem can be solved by addressing the outcome alone without going back to its cause.
Much of the blame for the hitches at the Seoul meeting goes to U.S. President Barack Obama, who was sneered at by his press back home for coming away empty-handed. Few countries can sympathize with him when Washington bundles all of its structural problems of low growth, unemployment and deficits and dumps them in the laps of surplus-making exporters like China, Germany and Brazil.
And talk about bad timing.
Just ahead of the summit, the U.S. Federal Reserve injected $600 billion to repurchase bonds and boost the economy, which made the dollar cheap and sent capital rushing into emerging markets, angering its export rivals and emerging economies.
In fact, the U.S.’ quantitative easing provided justification for emerging countries to defend their currency markets against capital inflows. Many say Washington would have walked away contentedly if it sought out greater liberalization in capital markets, especially the debt market, instead of focusing on exchange rates and trade imbalances.
The Seoul meeting at least bought time for many economies to re-examine their policies and come up with a common solution to the problems of the world economy. The U.S. should have learned by now that it can no longer resolve anything by looking for scapegoats for its structural problems.
With less pressure on the external front, China can now concentrate on more urgent domestic problems like asset bubbles, domestic demand and incremental currency appreciation. Other countries have also learned the dangers of competitive devaluation and will join international efforts to address imbalances in the world economy.
For now, a war has been avoided. And since leaders pledged not to resort to protectionism, currency differences won’t likely develop into trade friction.
The world has made a small, but important step toward coprosperity, a valuable fruit from Seoul’s big summit.
*The writer is an editorial writer of the JoongAng Ilbo.
By Kim Jong-soo