SEARCHING FOR SOLUTIONS: G20 leaders discuss the state of the global economy. The G20 Seoul summit concluded on November 12, where the leaders vowed to accelerate the global recovery by cooperating and coordinating efforts (XINHUA)
As they join hands on the macroeconomic front, the G20 countries are trying to brush away the clouds hanging over the global economy.
"Some of us are experiencing strong growth, while others face high levels of unemployment and sluggish recoveries. Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions. However, uncoordinated policy actions will only lead to worse outcomes for all," the G20 stated in a joint communiqué on November 12 closing the two-day Seoul summit held in South Korea.
This was the fifth gathering of the G20 leaders since they first met in Washington, D.C. in November 2008 when the financial crisis was just starting to sweep the globe.
The G20 was established in 1999 to bring together strategically important industrialized and developing economies to discuss key issues in the global economy. Together, the G20 members represent around two thirds of the world's population, 90 percent of global GDP and 80 percent of world trade.
"We recognize the importance of addressing the concerns of the most vulnerable. To this end, we are determined to put jobs at the heart of the recovery, to provide social protection, decent work and also to ensure accelerated growth in low income countries," said the communiqué.
The summit called on member countries to move toward more market-determined exchange rate systems, enhance exchange rate flexibility to reflect underlying economic fundamentals, and refrain from competitive devaluation of currencies.
Obviously, the U.S. position has been undermined by its own recent quantitative easing policy that threatens to weaken the greenback and trigger a flood of speculative capital into the emerging markets, Xiang Songzuo, Deputy Director of the International Monetary Institute at the Renmin University of China, told Xinhua News Agency.
Emerging economies fret they will be left vulnerable to a crash if the speculators later pulled out their money abruptly, he said.
A major irritant in the run-up to the summit was Washington's proposal to set numerical targets for current account deficits and surpluses in a bid to address global economic imbalances. U.S. Treasury Secretary Timothy Geithner even suggested that countries should implement policies to reduce their current account imbalances below a specified share of national output.
Instead, the G20 leaders only agreed to draw up "indicative guidelines" to reduce unsustainable imbalances, and left the details to be discussed in the first half of next year.
The international community also raised doubts about the feasibility of the U.S. proposal. German Economic Minister Rainer Bruederle warned of falling back into "planned economic thinking," while China's Foreign Ministry spokesman Ma Zhaoxu said the numerical target is unrealistic and unfair to developing countries.
As the size of a sustainable current account imbalance cannot be the same for advanced and developing economies and countries that are oil exporters, it was not practicable to set uniform targets like linking the size of a surplus or deficit to the GDP, said Dominique Strauss-Kahn, Managing Director of the IMF.
When the financial crisis drained the life out of the world economy in 2008, the G20 managed to put their differences aside and rolled out coordinated stimulus packages in the London summit in April 2009. This was even hailed by many economies as a new model of global economic cooperation.
Two years later, the urgency to act as one seems to have faded. The policy unity also faces challenges as member countries find themselves in difference stages of recovery.
The global recovery is proceeding better than expected but at varying speeds—tepidly in many advanced economies and solidly in most emerging and developing economies, said the IMF in an October report.
"Better growth prospects in many emerging economies have triggered a resurgence of capital inflows, igniting the risk of inflation pressure and asset bubbles," said the report. "Meanwhile, growing sovereign risks in Europe could undermine the financial stability gains and extend the crisis."
The G20 has since clashed over a string of issues including the withdrawal of stimulus, currency valuation and trade imbalances. For example, the United States and Europe have sparred over a proper timing of stimulus withdrawal. The Obama administration in September 2010 unveiled a $350-billion stimulus package including infrastructure spending and tax cuts.
"In the past, stimulus was too quickly withdrawn and resulted in renewed hardships and recession," said U.S. President Barack Obama.