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Kong Il-sa is Chairman and CEO of the Korea International Trade Association (KITA), Senior Economic Advisor to the President, Chairman of the G20 Summit Korea Coordinating Committee and former Finance Minister.
Why G20 instead of G7?
The G7 has been acting as if it were the informal global steering committee for global economic and financial issues since its inception in the mid-1970s. However, during the last couple of decades many have considered the G7 to lack political legitimacy since it excludes new economic powers from the emerging world. These critics rightly claim that any informal global steering committee should reflect the shift in global economic power that has taken place during recent decades. Without participation of new major powers, global financial and economic issues cannot be properly addressed. In the midst of the unprecedented global financial and economic crisis, a G20 summit instead of G7 was held in Washington last November to deal with the current crisis and to find ways of preventing recurrence of such crises in the future. Indeed, it was a historic event for global governance.
Major Achievements of the London G20 Summit, April 2, 2009
Deliverables! Deliverables and the continuation of the G20 process defined the London G20 Summit, shaking off widespread skeptical views prior to the summit. Without deliverables, the London Summit would have been another casualty of the “G7-style” rhetorical feast, making the G20 process irrelevant. For this reason, the global community, and the financial community in particular, showed a strong positive reaction.
It is significant that the G20 leaders recommitted themselves to resisting protectionism and continuing the “standstill” to the end of 2010 and that they further agreed on the “rollback” of protectionist measures taken since last November. In fact, President Lee Myung-bak advocated for the “standstill” in Washington and the “rollback” in London. According to the World Trade Organization (WTO), various protectionist measures have been taken since last November but fortunately none of the measures significantly distort global trade.
Another achievement of the London G20 Summit was the agreement on increasing international financial institutions’ (IFIs) resources, which will be used to assist the developing and emerging economies that suffer most in times of crisis. The leaders acknowledged the reform of the IFIs’ governance system and expedited a review of the quota to better reflect the economic strength of member countries. On financial regulation and supervision, the leaders agreed on reform of tax havens, hedge funds, and credit rating agencies. However, more complicated issues—such as procyclicalities of credit rating—have not been sufficiently discussed.
South Korea’s Role as Member of the Troika
South Korea was privileged to participate in the troika of the G20 Summit alongside the United Kingdom and Brazil. To carry out its privileged responsibility as part of the troika, South Korea set up a ministerial-level committee. As chairman of the committee, I worked closely with most G20 counterparts, especially the chair.
First, we concentrated our efforts on persuading G20 partners to balance the Summit agenda by dealing with the deepening recession and reforming the financial regulatory and supervisory system. At the same time, we tried to convince our G20 counterparts not to dilute the focus of the summit by adding other heavyweight issues, such as climate change, while making it clear that such issues can be included only in the context of countering the crisis. We urged our counterparts to put priority on producing specific guidelines and implementable measures in London. We also promoted the idea of actively engaging the International Monetary Fund (IMF) and the WTO in the G20 process so that those organizations can provide their expertise and analytical support for the summit.
Without resolving the impaired asset problem, macroeconomic measures cannot take full effect. Based on its experience of the 1997-98 financial crisis, South Korea submitted the “Korea’s proposal” to the G20 finance ministers meeting, major points of which were integrated in a finance ministers’ communique attachment. President Lee Myung-bak elaborated on six general principles in dealing with impaired assets at the Summit that were reflected in the communique.
As both a member of the emerging economies and an Organisation for Economic Co-Operation and Development (OECD) member, South Korea tried hard to play a bridging role and to speak on behalf of the emerging economies at the summit.
Way Forward for the G20 Summit
Despite significant achievements made thus far, the G20 Summit must still deal with such unresolved critical issues which beg the continuation of the G20 process. With the green shoots of recovery taking hold, the world now needs to start seriously contemplating exit strategies and post-crisis macroeconomic management. The third G20 summit to be held in September in Pittsburgh should already be addressing these issues, so that the discussion can continue into 2010.
Going forward, the global effort to prevent a future crisis must encompass a wide range of unsettled issues regarding the international financial architecture. To this end, we have been advocating for the creation of wise men’s groups.
At this juncture, it may be premature to entertain the notion of institutionalizing the G20 Summit as an informal global economic steering committee. However, given its representation and inclusiveness, one might argue that the G20 has sufficient political legitimacy to position itself as an informal global steering committee. To further build such momentum, it is critically important that the G20 Pittsburgh Summit achieves further success.