TWN Info Service on Finance and Development (Nov10/12)
18 November 2010
Third World Network

Agrees on vague guidelines, no accord on "currency values" or imbalances
Published in Published in SUNS #7040 dated  15 November 2010

Geneva, 12 Nov (Chakravarthi Raghavan*) - The Group of 20 ended its Seoul Summit Friday, unable to resolve major differences on "currency values" or how to reduce global imbalances, but with agreement of sorts on a vague set of guidelines and a range of indicators to be developed and progress to be discussed in the first half of 2011, and to monitor progress in national policy commitments through its Mutual Assessment Process.

The Summit (11-12 November) ended with a Declaration and the Seoul Action Plan of continued commitment to cooperation, with concrete national policy commitments outlined in a Supporting Document.

The outcome is long on promises covering a range of subjects, outlining goals and objects, but sparse in concrete details of the processes to go from here to there.

The Action Plan and the other documents, commit the world's leading economies in the G20 to actions in five policy areas, with details of specific commitments by the members set out in the Supporting Document (issued along with the Declaration and Action Plan).

On monetary and exchange rate policies, the G20 reaffirms the importance of commitment to price stability, recovery and sustainable growth, a move towards market-determined exchange rate systems and enhance exchange rate flexibility to reflect economic fundamentals and refrain from competitive devaluations.

Advanced economies, including those with reserve currencies, will remain vigilant against excess volatility and disorderly exchange rate movements, thus mitigating the excessive volatility in capital flows facing some "emerging market economies". Nonetheless, in circumstances where countries face 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, the Summit document said.

On trade and development, the G20 spoke of its commitment to "free trade and investment", refrain from introducing, and oppose protectionist policies, recognise importance of a prompt conclusion of the Doha negotiations, focus efforts to resolve significant bottlenecks to inclusive and sustainable growth in developing countries, and low-income ones, in particular.

In the area of fiscal polices, the advanced economies are to formulate and implement clear, credible, ambitious, and medium-term fiscal consolidation plans.

On financial reform, the G20 promised among others to fully implement new bank capital and liquidity standards, and address too-big-to-fail problems, and agreed to further work on regulatory reforms.

In the area of structural reforms, the G20 promises to implement a range of structural reforms to boost global demand, foster job creation, contribute to global re-balancing, and increase growth potential; undertake reforms in product markets, labour market and human resource development; tax reforms; green growth and innovation-oriented policy measures; reforms to reduce reliance on external demand and focus more on domestic sources of growth in surplus countries, and promote higher national savings and export competitiveness in deficit countries; 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; and investments in infrastructure to address bottlenecks.

For enhancing its Mutual Assessment Process (MAP) to promote external sustainability, the G20 promises to strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances, and maintaining current account imbalances at sustainable levels.

Towards this end, the G20 Finance Ministers and Central Bank Governors are to agree on indicative guidelines to assess the nature and the root causes of impediments to adjustment as part of the MAP, while taking into account national or regional circumstances, including large commodity producers. The indicative guidelines are to be composed of a range of indicators to serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken.

To support these efforts and commitments, the G20 Framework Working Group, with technical support from the International Monetary Fund (IMF) and other international organizations, is mandated to develop these indicative guidelines, with progress to be discussed by its Finance Ministers and Central Bank Governors in the first half of 2011.

The Summit has endorsed the G20 Finance Ministers' call at their meeting in Gyeongju, for the IMF to provide an assessment, as part of the MAP, on the progress toward external sustainability and the consistency of fiscal, monetary, financial sector, structural, exchange rate and other policies. The first such assessment, to be based on the above-mentioned indicative guidelines, will be initiated and undertaken in due course under the French Presidency.

Other areas covered in the promises and commitments of the G20 document include:

* Actions on promises made to support International Financial Institutions (IFIs) with resources to support the global economy, and G20 commitments on further reforms needed at IFIs;

* "modernized" IMF governance (with the G20 endorsing and commending the "comprehensive IMF quota and governance reform package" approved by the IMF Executive Board and remitted for vote to the Board of Governors (see "IMF governance change proposals less than trumpeted" in SUNS #7039 dated 12 November 2010);

* strengthened IMF surveillance;

* completion of ambitious replenishment for concessional lending by Multilateral Development Banks;

* strengthened global financial safety nets - the already achieved enhancement of the IMF's Flexible Credit Line, creation of a Precautionary Credit Line, and the recent IMF decision to continue work to improve global capacity to cope with shocks of a systemic nature, and the dialogue to enhance collaboration between Regional Financial Arrangements (RFAs) and the IMF;

* mandate to G20 Finance Ministers and Central Bank Governors for a structured approach to cope with shocks of a systemic nature, and ways to improve collaboration between RFAs and the IMF;

* endorsing financial sector reforms and transformed financial system to address the root causes of the crisis (including the new Basel III capital and liquidity framework) and the work of the Financial Stability Board (FSB) on SIFIs (systemically important financial institutions) and the TBTF (too big to fail) problems, higher loss absorbency capacity for SIFIs, and initially more intense supervisory oversight for G-SIFIs (globally systemically important financial institutions);

* encouraging the FSB, Basel Committee on Banking Supervision (BCBS) and other relevant bodies to complete their remaining work, in accordance with their work processes and time-lines in 2011 and 2012;

* G-SIFIs should be subject to a sustained process of mandatory international recovery and resolution planning;

* implementation and international assessment, including peer review, of the ongoing processes of the reform efforts (including in an internationally consistent and non-discriminatory manner, work on strengthened regulation and supervision of hedge funds, over-the-counter derivatives and credit rating agencies);

* importance of achieving a single set of improved high quality global accounting standards;

* commitment to preventing non-cooperative jurisdictions from posing risks to the global financial system, and welcomed the ongoing efforts by the FSB, Global Forum on Tax Transparency and Exchange of Information and the Financial Action Task Force.

In the area of future work warranting more attention, the Summit identified:

* further work on macro-prudential policy frameworks;

* addressing regulatory reform issues pertaining specifically to emerging market and developing economies;

* strengthening regulation and supervision of shadow banking;

* further work on regulation and supervision of commodity derivative markets;

* improving market integrity and efficiency; and

* enhancing consumer protection.

In the area of trade and investment, the Seoul documents:

* reiterated importance of free trade and investment, and the commitments to keep markets open and liberalizing trade and investment;

* welcomed the broader and more substantive engagement of the past four months on the WTO Doha Development Round, and called for intensified and expanded engagement with a view to completing the end game. The Summit asked negotiators to engage in "across-the-board" negotiations to bring the round to a "successful, ambitious, comprehensive and balanced conclusion consistent with the mandate of the Doha Development Round and built on progress achieved".

"Once such an outcome is reached, we commit to seek ratification where necessary in our respective systems," the Summit document declared.

[But this last seemed problematic, insofar as the US is concerned, given the recent US Congressional electoral outcome, and the ongoing US political processes, with the two parties focussed on the 2012 elections.]

The Seoul Development Consensus for shared growth and a Multi-year Action Plan on Development (outlined in two annexes) are seen as replacing the failed and discredited Washington Consensus.

[But these will be judged on how they play out in actions - and there is ground for considerable scepticism given that the same technocrats and bureaucrats of the international system and those running the institutions are the same ones from the neo-liberal Chicago school economic doctrines.]

In practical terms, the Seoul Summit failed to deliver on the "duty-free quota-free" promises in trade for the least developed countries.

The Summit Action Plan and document also cover the areas of financial inclusion, support to Small- and Medium-sized Enterprises (SMEs) and SME financing and credits, fossil fuel subsidies and fossil fuel price volatility, the Global Marine Environment Protection, Climate Change and Green Growth, anti-corruption, and enhancing G20 processes for consultations with the wider international community.

(* Chakravarthi Raghavan, Editor Emeritus, contributed this report to the SUNS.)