G20 closes with compromises on contentious issues

Sunday, November 14, 2010

Seoul - Leaders of the world's major developed and developing economies left the G20 Summit venue in southern Seoul on Friday afternoon with a joint communique featuring obvious compromises on contentious issues.

The two-day Seoul Summit was held amid tension among G20 countries over several issues, including trade imbalances and currency policies. There had even been talks of a so-called currency war.

It was further complicated by the United States Federal Reserve's move, called "quantitative easing", to inject US$600 billion into the US economy to spur growth. The move had caused uproar among G20 countries such as Germany, South Africa, China and Brazil.

Attending the Seoul Summit were leaders from the G20 member countries, the European Union, the IMF, the World Bank, the UN, the World Trade Organisation, the OECD, the African Union, and the International Labour Organisation, as well as from five non-G20 countries - Ethiopia, Malawi, Singapore, Spain and Vietnam.

According to the communique issued at the end of the summit, the G20 members said they would move toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.

But when G20 countries are facing undue burden of adjustment, policy responses in emerging market economies with adequate reserves and increasingly overvalued flexible exchange rates may also include carefully designed macro-prudential measures, it said.

Over the trade imbalances, the G20 members said they would enhance cooperation to reduce trade imbalances and maintain imbalances at sustainable level.

They would also develop indicative guidelines composed of a range of indicators, which will serve as a mechanism to facilitate identification of large imbalances that required preventive and corrective actions.

At the same time, the G20 members said they would refrain from introducing, and oppose protectionist trade actions in all forms, and recognise the importance of a prompt conclusion of the Doha negotiations.

Prior to Seoul Summit, the US had pressed the G20 to address the trade imbalances by setting limits on trade surpluses and deficits at about 4 percent of the Gross Domestic Product.

The US demand was refused by several G20 members, including Germany. German Chancellor Angela Merkel said Thursday that it was necessary to reduce excessive trade imbalances, but it was unnecessary to set a numerical target for them.

As to concerns among emerging economies over the flooding of liquidity following US monetary easing, the G20 said current volatility of capital flows was reflecting the differing speed of recovery between advanced and emerging markets.

National, regional and multilateral responses are required. And better global financial safety nets can help, said the communique.