The fifth G20 summit, which took place in Seoul, Korea, on November 11-12, 2010, stands out as a significant event in several ways. It was the first time a G20 summit was held in Asia, after the first four in the largely Anglo-American, Atlantic world. It was the first time it was hosted by a new rapidly emerging country, rather than by an established G8 power of the past. It was the first time it was delivered in tandem with the Asia Pacific Economic Cooperation (APEC) leaders’ meeting, on November 13-14 in nearby Yokohama, Japan. It was also the first time it was held in a region where the Cold War had not ended, and where a hot war could break out at any time. The host — Korea — was now a democratic, developed polity devoted to open trade and a member of the Organisation for Economic Co-operation and Development (OECD). The Seoul Summit came with a major G20 business summit and a pre-summit scholarly conference, and just after the first ever meeting of G20 parliamentarians, all bringing civil society into G20 governance in a collective way.
An important moment for a international meeting
The summit took place at a critical time, in the face of a fragile, uneven global recovery, another European financial crisis similar to that in May 2010, the potential threat of a “currency war.” Leaders had to convince the new U.S. Congress elected on November 2, with its Republican majority in the House of Representatives, and others that good growth and jobs would soon return. The advanced economy leaders needed to show suspicious markets eying deeply indebted European countries led by Greece, Portugal and Ireland as well as publics protesting painful austerity measures in France and Britain that they remained committed to the medium-term fiscal deficit and debt reduction targets promised as the central achievement at their Toronto Summit on June 26-27, 2010. This task was rendered acute by the risk premium on Irish government bonds spiking to historic highs, due to fears of a default, just two days before the Seoul Summit’s start. And with new major quantitative easing in the United States and Japan, an undervalued Chinese renminbi and recent taxes on capital inflows into Brazil and elsewhere, G20 leaders needed to contain what could have become a genuine crisis in the global economy as a whole.
Impressive achievements in the financial and macro-economic areas
In the end Seoul produced a summit of substantial success. It was led by its achievements on the big issues on its built-in agenda, beginning with domestic and international financial reform.
In the domestic domain, leaders politically endorsed the new rules on the quantity and quality of banking capital, liquidity and leverage that the Basel Committee had crafted in mid September on the G20’s behalf, which the G20 finance ministers and central bank governors had approved in October at Gyeongju. Leaders also guided future work on systemically significant financial institutions, cross-border resolution regimes, derivatives and credit rating agencies. They responded to the predictable proposals for new bank levies and international financial transaction taxes in ways that deflected populist pressures but did not damage the economic recovery and the confident, capital-rich financial system on which it depends.
In the international domain, the politically pressing challenge was the reform of the international financial institutions, specifically completing the promised shift of at least 5 % of the quota share at the International Monetary Fund (IMF) to the rapidly rising emerging economies from the declining, established, continental European ones. This needed to be done in a way that the legislatures of all IMF members, including the coalition governments in democratic polities that would lose influence, could ratify back home. Here the Europeans had initially shown few signs of making the necessary accommodations, even as the Americans had used their dominant position in the IMF to induce them to move. Making such a basic change in a zero sum game is usually what leaders alone are asked to do. Yet at Gyeongju the finance ministers prepared the way by crafting a creative, balanced bargain that respected the basic needs of those who count. The leaders approved it at Seoul, avoiding the danger of their breaking their bargain with hitherto patient China, India and Brazil.
In governing the global economy, the leaders did enough to develop their Framework for Strong, Sustainable and Balanced Growth to contain current account imbalances and any prospective currency wars. They took the framework and its Mutual Assessment Process to the next level of detail and determination, with all G20 members committing to craft “indicative guidelines” in early 2011 and then to make the broad array of adjustments for all to be better off.
In its macroeconomic message, Seoul reinforced in appropriately adjusted form the “Toronto terms” of stimulus now, exit soon and fiscal consolidation in the medium term. It did so in ways helpful to the struggling European pioneers that had already started down this path and to a economically and fiscally struggling United States still with no credible plan to follow suit. But it did nothing to promise beleaguered European governments, now under escalating attack from the bond market, that G20 governments — including those with fiscal surpluses and massive foreign exchange reserves — would ride to their rescue should the need arise.
Need more time to achieve concrete accomplishments
On trade the leaders made modest but meaningful moves, due to the activism of Pascal Lamy, head of the World Trade Organization and the free trade convictions of G20 host Lee Myung-bak, Canada’s Stephen Harper, Germany’s Angela Merkel, Britain’s David Cameron and Brazil’s Lula da Silva. They promised a personal push to complete the Doha development negotiations by the end of 2011.
Elsewhere on its built-in agenda of development, climate change and energy, food and agriculture, and anticorruption, the Seoul Summit made few advances. But on the two new issues on its agenda, there was substantial success. The Korean initiative to strengthen financial safety nets proved prescient and productive, as the G20 induced the IMF to respond in an appropriately multilateral way with regional reinforcements behind.
On development, the G20 endorsed a new strategy based on “resilient growth.” The “Seoul Development Consensus for Shared Growth” defined new principles and an action plan, drawing on Korea’s own experience in generating growth through instruments beyond public aid. It called for a partnership between rich and poor countries set on nine pillars, including mobilizing domestic finance, financial inclusion, social protection, good governance, infrastructure, private investment and food security.
Importantly, the leaders referred to “reforms to strengthen social safety nets such as public health care and pension plans, corporate governance and financial market development to help reduce precautionary savings in emerging surplus countries.” Moreover, for the first time they recognized the importance of non-communicable diseases. This was a subject that, if left unaddressed, would take a cancerous toll on their ability to meet their medium-term targets for fiscal consolidation, and the lives of citizens in advanced, emerging and developing states.
These accomplishments were driven in the first instance by a second euro-crisis erupting, now from Ireland and by the familiar spectre of a 1930s-like currency war that could fuel the trade protection that G20 leaders had already credibly committed to avoid. The built-in advances on finance were prompted by the general failure and specialized support of the old IMF and the help of the newer, G20-guided Basel Committee and Financial Stability Board. Less progress came in areas where the more political United Nations, its functional agencies such as the Food and Agriculture Organization and its fragile bodies guiding climate change had the lead. The compact G7 club within the G20 pushed advances on domestic financial regulation. The strongly predominant, equalizing capability among the advanced and emerging members of the G20 drove progress on macroeconomic policy, the framework and international financial institution reform.
The G20 leaders were pushed further by their common commitment to the G20’s core mission of preserving financial stability, by the continuity and experience of virtually all of them in G20 summitry, and by the economic and business expertise of host Lee, former host Harper and key emerging country leaders led by India’s Manmohan Singh. Finally, the intensity of their face-to-face interaction, with five G20 summits within two years and the reinforcement from advanced-emerging plurilateral summit institutions such as APEC drove them forward in areas where a looming crisis was not at hand.
Taken together, the Seoul Summit’s advances in strengthening G20 governance and its important policy accomplishments were sufficient to keep the momentum of G20 institutionalization and cooperation. More broadly, Seoul suggested that the G20 had successfully made the transition from a global crisis response committee to a global steering committee. Yet it had not simultaneously remained an alert, anticipatory, first responder to the next crisis coming. With less than 24 hours for their summit at Seoul, G20 leaders had too little time together both to deliver on the existing agenda and to cope with the new euro-crisis erupting on the summit’s eve in small Ireland and spreading to infect Europe’s larger countries such as Spain and Italy as they met. Finding the formula to do both crisis response and post-crisis global governance together is the central challenge for France as G20 host and chair in 2011.
