On Nov. 5, 2009, KOPEC (the Korean National Committee for Pacific Economic Cooperation) hosted a closed roundtable. This roundtable aimed to come up with a proposal on what should be in the agenda for the 2010 G20 Summit in Korea. This proposal was to be submitted to the Korean Ministry of Strategy and Finance and other Korean government bodies.
The roundtable was a follow-up to a successful informal meeting in Ubud, Bali, on Aug. 22, 2009, held by KOPEC and INCPEC (Indonesian National Committee for Pacific Economic Cooperation). From the roundtable discussion, there were essentially two separate yet interconnected agendas for the G20 Summits in Huntsville and Seoul.
The agenda for the G20 Summit in Huntsville will focus on short-term economic rescue, including exit strategies and the timing of such exits. The agenda for the G20 Summit in Seoul will focus on the medium- to long-term economic reforms for sustainable and balanced growth.
Among the outstanding items on the agendas for the medium- to long-term economic reforms that were discussed was structural reform, which essentially meant market competition and well-functioning markets. In China, for instance, there is still the need to liberalize the factor market, especially in the land and labor market.
On the issue of high savings and low consumption in China, social safety-net programs might boost consumption. Any involuntary savings pushed by the government should be removed. A higher proportion of income should go to households. Incomplete markets, such as the absence of secondhand car markets, are also part of the causes.
Structural and other domestic reforms demand strong domestic political commitment. Not only is strong leadership needed, but internal political structures must also be efficient. As said by Jeffrey Sachs, G20 countries have weak internal political structures that cannot meet 21st-century challenges, including challenges to build up international forums.
Another issue raised at the roundtable was trade protectionism. According to the Global Trade Alert, almost all the G20 countries are committed to protectionism despite the Standstill Declaration. This is a serious issue that has to be resolved before the G20 Summit next year, which is also an important gesture to maintain the credibility of the G20. Another important trade item was the Doha Development Agenda and trade financing.
On development issues, infrastructure got the most attention. Emerging countries need advisories on planning, financing and priorities. On climate change, designing a framework to value carbon is a precedent to “carbon rights” and “carbon economies”.
Setting strategies to reduce global imbalance is a debatable matter. Focus must be given on the need to change the incentives to save and to spend and not to reduce the global imbalance per se. Among these incentives is to set up an excess liquidity support as a self-insurance mechanism to protect countries against liquidity crisis and other financial crises.
With an expected fall in the dollar, reserve currency risks must be controlled. Global imbalances should not only be multi-lateralized but also diversified so they would be an issue but not the only issue in the framework for sustainable and balanced growth.
The microeconomic sector is not irrelevant to solving macroeconomic imbalances. In China, for instance, the growth of urban centers has changed the consumption patterns of new settlers and workers.
Some nuts and bolts of the summit include the communications and interactions among the G20 leaders. It is important that East Asian countries do not behave as rigidly as European countries usually do at the summit. They must be flexible and constructive enough to new ideas. Also, East Asian countries should try to find a common agenda and problems, but they should not form a caucus like the BRIC.
The arithmetic of global imbalances is not unfavorable, but coordination to tackle the issue is not simple. It suffers the collective action problem. Issues to be discussed at the summit should be amenable to international cooperation. There must also be some outreach to make the G20 legitimate as the global governance. With the presence of the G20, there must be some adjustments made to regional and national agendas.
The writer is an associate member of the Centre for Strategic and International Studies, Jakarta. She was a rapporteur for the Bali meeting on Aug. 22, 2009, and the Seoul Roundtable on Nov. 5, 2009.