G-20 Think Tank 20 Essays

8/6/2019 G-20 Think Tank 20 Essays

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Thnk Tank 20:

Global Perspectives on the Seoul G-20 Summit

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Mamoha Agarwal

Shiji Asauma

Izak Atiyas

Muhammad Chatib Basri

Kemal Dervi

Peter Drysdale

Abdullah El Kuwaiz

Tomas Fues

Paolo Guerrieri

Sergei Guriev

E. Fuat Keyma

Homi Kharas

Miguel A. Kiguel

Rajiv Kumar

Wohyuk Lim

Pedro S. Mala

Jacques Mistral

Jea Pisai-Ferry

Richard Portes

Joh Whalley

Peter Wol

Kamil Yilmaz

Soogil Youg

Qiao Yu

nOVEMBER 2010

HInK AnK 20:Global Perspectives on the Seoul

G-20 Summit


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Contents

Introduction to the Tink ank 20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Kemal Dervi

Vice President, Global Economy and Development, Te Brookings Institution; Former Executive Heado the United Nations Development Program; Former Secretary o reasury and Economy Minister,Te Republic o urkey; Advisor, Istanbul Policy Center

aRgEnTna

Currency Appreciations Come in Diferent Shapes and Sizes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Miguel KiguelFormer Undersecretary o Finance and Chie Advisor to the Minister o the Economy, Argentina; FormerPresident, Banco Hipotecario; Current Director, Econviews; Proessor, Universidad orcuato Di ella

ausTRala

Opportunity or Asia and the G-20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Peter DrysdaleEmeritus Proessor o Economics, Australian National University; Head o theEast Asian Bureau o Economic Research; Co-editor, East Asia Forum

Soogil YougPresident, Korea National Strategy Institute; Chair, Korean National Committee or Pacifc Economic Cooperation;Chair, Presidential Committee on Green Growth, Te Republic o Korea

BRazl

Te G-20 and Development: Tree rying riads. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Pedro MalaFormer Minister o Finance, Brazil; Former President o the Brazilian Central Bank; Current Chairman,Board o Directors, Unibanco

Canada

Te G-20: Development and the Role o Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . 11Mamoha AgarwalSenior Visiting Fellow, Center or International Governance Innovation

Joh WhalleyDistinguished Fellow, Center or International Governance Innovation; Proessor, Center orthe Study o International Economic Relations, University o Western Ontario

Chna

Making Big Deals to Help the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Qiao YuProessor, School o Public Policy and Management, singhua University


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FRanCE/EuROpEan unOn

Te G-20 and the Currency War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Jea Pisai-FerryDirector, Bruegel; Member o the French Prime Ministers Council o Economic Analysis; Member,European Commissions consultative Group o Policy Analysis; Proessor, Universit de Paris-Dauphine

FRanCETe G-20 Seizure o Development: Inspiration, Vision and Action . . . . . . . . . . . . . . . . . . . . . . 19

Jacques MistralHead o Economic Research, Institut ranais des relations internationales; Former advisor to theDirecteur gnral du rsor et de la politique, Ministre des fnances-Paris; Former member o theFrench Prime Ministers Council o Economic Analysis

gERMany

Te G-20 and Global Development: Which Road to ake?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Tomas FuesDirector, Development Policy Perspectives on Global Governance in the Context o the U.N. System,

German Development Institute

Peter WolHead o World Economy and Development Financing, German Development Institute

nda

IMF Reorms Bode Well or the G-20 Seoul Summit, But More angibleGains Are Needed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Rajiv KumarDirector General, Federation o Indian Chambers o Commerce and Industry; Member, Central Board,State Bank o India; Former Director and Chie Executive, Indian Council or Research on InternationalEconomic Relations; Former member, National Security Advisory Board o India; Former member,

elecom Regulatory Authority o India

ndOnEsa

Lessening Pressure on rade Protectionism by Diversiying Exports . . . . . . . . . . . . . . . . . . . . 27Muhammad Chatib BasriDirector, Institute or Economic and Social Research, University o Indonesia

Taly

Te G-20 and wo Scenarios or the World Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Paolo Guerrieri

Proessor o Economics, University o Rome Sapienza; Proessor, College o Europe, Bruges

Japan

A Development Agenda or the Seoul 2010 G-20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Shiji AsaumaVisiting Proessor, the Asian Public Policy Program, School o International and Public Policy, HitotsubashiUniversity, okyo; Former Director, Graduate School o International Corporate Strategy; Member, JapaneseODA Policy Board


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kOREa

Te G-20 Calls a ruce in the Currency War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Wohyuk LimFellow, Korea Development Institute; Fellow, Korea National Strategy Institute

Russa

G-20 Priorities: Heavily Indebted Rich Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Sergei GurievRector, New Economic School, Moscow

saud aRaBa

Addressing Development at the Seoul G-20 Summit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Abdullah Ibraim El-KuwaizFormer Saudi Arabian Ambassador to the Kingdom o Bahrain; Former Saudi Arabian Executive Director,Board o the Islamic Development Bank; Current Deputy Chairman, Governing Board o the Oxord Instituteor Energy Studies; Founding member and Deputy Chairman, Executive Committee, Arab Energy Club, Beirut

TuRkEy

Challenges to Development in Our Globalizing World. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Izak AtiyasProessor, Sabanci University

Kamil YilmazProessor, Ko University

E. Fuat KeymaProessor and Director, Istanbul Policy Center, Sabanci University

unTEd kngdOM/ EuROpEan unOn

Currency Wars and the Emerging Market Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Richard PortesPresident, Center or Economic Policy Research;Proessor, London Business School

unTEd sTaTEs

Development in the G-20: Common Ground? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Homi KharasSenior Fellow and Deputy Director, Global Economy and Development, Te Brookings Institution;Former Chie Economist, East Asia, World Bank


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itle o Sectionwith Second line as neededAuthors name

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Introduction to the Tink ank 20

Kemal Dervi

O november 11-12, G-20 leaders meet i

Seoul with Korea as the hostthe rst time

that a emergig or ewly idustrialized

coutry chairs the meetig. Opiio o what the

G-20 has achieved sice it started to meet at lead-

ers level two years ago is divided. May ocus o

the actual summit meetigs ad o the act that it

has bee hard to achieve cocrete agreemet o

key policy issues. no doubt the G-20 is also threat-

eed by the sydrome o grad declaratios with

weak ollow up that we already observed durig

G7 meetigs i the past.

It is importat to realize, however, that the G-20

summits have give rise to a elaborate process

o preparatio, which has led to a uprecedet-

ed degree o iteractio betwee policymakers

ad key civil servats that ow ivolves ocials

rom the large emergig market ecoomies. It is

too early to ully evaluate the results o the G-20

ace miisters meetig o October 22-23, but

the agreemet reached o curret accout target

zoes ad reorm o IMF goverace may tur out

to be a key step orward i global ecoomic coop-

eratio. For observers o the G7 i the past, oe o

the valuable side products o the process had bee

a degree o amiliarity ed by requet braistorm-

ig betwee key ocials that progressively led to

greater cohesio ad acilitated decisio-makig,

particularly at a time o crisis. Such iteractio is

ow takig place betwee a much wider group o

coutries that is much more represetative o our

21st cetury world. I kow rom persoal experi-

ece how importat it is to kow oes couter-

parts i other coutries ad iteratioal orgai-

zatios, how useul it ca be to be able to call them

up iormally, how critical persoal trust ca be

i resolvig dicult problems. Such trust does ot

Vice President, Global Economy and Development, Te Brookings Institution; FormerExecutive Head o the United Nations Development Program; Former Secretary o reasuryand Economy Minister, Te Republic o urkey; Advisor, Istanbul Policy Center

develop overight. Eve i the G-20 meetigs do

ot yet meet the very high ad somewhat urealis-

tic expectatios that have emerged or them, a very

serious process o policy discussios ad cosulta-

tios has started ad it ow ivolves, as it should,

a much broader set o actors. Tat i itsel is real

progress.

I todays world, however, ocial cosultatios are

ot eough. Tey eed to be complemeted, ed

ad supported by discussios amog civil society

actors, academics ad busiess leaders who ca

break out o ocial costraits i the ideas that are

tabled ad i the approaches take. At the Global

Ecoomy ad Developmet program at the Brook-

igs Istitutio, we ivited a group o rieds ad

colleagues active i thik taks ad uiversities i

G-20 coutries, ad/or actively workig o G-20

related issues, to cotribute short thik pieces at

the occasio o the Seoul 2010 Summit. I order to

give some ocus to these cotributios, we ecour-

aged the cotributors to relate their commets at

least broadly to the developmet dimesio that

the Korea hosts have icluded i the ageda o

the summit ad to the lik betwee developmet

ad key global policy issues.

We have ttigly amed the collectio o cotri-

butios the Tik ak 20 (-20). Ad while

we iitiated the process at Bookigs, it is a ully co-

operative eterprise ad we hope that other thik

taks ad research groups will post the cotribu-

tios ad dissemiate them as much as we hope to

do. We also hope that this is just the rst step i a

ogoig eort to accompay the ocial G-20 pro-

cess by a etwork o iormal opiio leaders who

work idepedetly but i cooperatio with each

other ad whose regular iteractios will allow


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both a icreasigly deeper aalysis o the issues

ad iovative ideas that ca add to the debate

ad be helpul to the global cooperative process.

I would like to express my heartelt gratitude to

all the cotributors as well to my Brookigs col-

leagues, otably to Homi Kharas who iitiated this

cooperatio, to Mao-Li She ad Eilee Galla-

gher who accompaied the eort ad to Adrea

Holcombe who orgaized ad ollowed up o the

iteractios. I would also like to thak the mem-

bers o the Global Leadership Coucil or their

geeral support o our eorts i the eld o global

ecoomic goverace.


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Currency Appreciations Come inDiferent Shapes and Sizes

Miguel A. Kiguel

Exchage rate policies that are at the ceter o

policy discussios are itroducig ew chal-

leges or Lati America. While Chia is re-

sistig a omial appreciatio, coutries like Bra-

zil, Chile ad Uruguay have already experieced

sigicat omial ad real appreciatios o their

currecies. Others, amely Argetia, are suer-

ig a stregtheig o their currecies as domestic

iatio ar exceeds the rate o omial deprecia-

tio.

Tis tred is causig cocer as these real appreci-

atios aect the ability o the coutries idustrial

ad service sectors to export ad grow, which i

some cases is associated with the so-called Dutch

disease.

Te currecy war discussios ad the adoptio o

policy measures to avoid sharp ad rapid real ap-

preciatios o the currecies do ot clearly disti-

guish the dieret orces that could uderlie these

processes. Tere are at least three dieret actors

that are importat ad the policy respose should

i priciple dier depedig o the relative im-

portace o each o them: diereces i growth

ad productivity rates, improvemets i terms o

trade ad capital iows.

Te higher rates o growth i emergig markets are

part o the explaatio. Tere is ample theoretical

ad empirical evidece that coutries which grow

aster experiece real appreciatios. Tis move-

met, however, should be gradual ad, i geeral,

the adjustmet i relative prices traspires with a

stable exchage rate ad through icreases i do-

mestic prices. Te coutries that adopted the euro

are examples o cases i which the real apprecia-

tio took place through iatio.

Former Undersecretary o Finance and Chie Advisor to the Minister o the Economy,Argentina; Former President, Banco Hipotecario; Current Director, Econviews;Proessor, Universidad orcuato Di ella

aRgEnTn

Te secod actorthe improvemet i the terms

o tradecould have larger ad more sudde im-

pacts o the real appreciatio o the currecy, es-

pecially i there are large icreases i export prices,

aectig the curret accout o the balace o pay-

mets. May Lati America coutries are com-

modity exporters ad ow ace these ew policy

challeges while the terms o trade gais geerate

widalls, represetig i some cases 60 percet o

GDP rom 2004-2008.

I the terms o trade eects are large ad ot per-

maet, a real appreciatio should be uavoidable

i the log term. Policymakers could delay this

process by iterveig i the oreig exchage

market to avoid a rapid omial appreciatio o

the currecy, ad the sterilize the moetary e-

ects o these purchases by issuig domestic debt

to avoid a icrease i domestic demad ad i-

atio.

However, sterilized oreig exchage itervetio

is ot eough to prevet Dutch disease, as it leads

to large icreases i domestic debt ad evetually

to higher domestic iterest rates that could geer-

ate capital iows ad complicate overall macro-

ecoomic maagemet.

Te alterative ad most eective policy respose

to the large terms o trade widalls, which may

coutries i Lati America have bee ejoyig

durig the last decade, is to rely primarily o s-

cal policy. Tis could happe through icreases

i public sector savigs to compesate or the i-

crease i domestic aggregate demad, or by the

creatio o a stabilizatio ud, like the oes that

Chile or norway have bee usig to sterilize the

higher export proceeds rom copper or oil. I the


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case o norway, it has accumulated uds that are

larger tha its omial GDP.

I Lati America, most coutries did ot use s-

cal policy or ailed to itroduce stabilizatio uds

to couteract the improvemets i the terms o

trade that took place durig the decade. Calcula-

tios idicate that i the regio there was a te-decy to sped rather tha to save the scal wid-

all a policy that avored the real appreciatios

o the currecies. I most coutries, icreases i

spedig were close to, or exceeded, the icreases

i reveues durig the recet boom. For istace,

Brazil spet more tha 3 percet o the GDP o the

widall i tax reveues.

I Argetia, the govermet icreased export

taxes durig the boom, maily o soybea prod-

ucts. Tese ew taxes raised as much as 10 percet

o overall govermet reveues ad were equiva-

let to 3 percet o GDP. However, these reveues

were spet rather tha saved ad hece did ot

work as a coutercyclical policy to avoid urther

pressures o the currecy.

Oe result o the ailure to use coutercyclical s-

cal policy was the icreased eect o the higher

reveue elt o domestic aggregate demad, eve-

tually leadig to a icrease i the price o o-

tradeable goods. As a result, eve whe coutries

did ot allow the omial exchage rate to appre-

ciate, they aced a stregtheig o their curre-

cies i real terms.

Fially, capital iows are the third ad most im-

portat actor that has bee pressurig the Lati

America currecies toward appreciatio. Tis

actor also created the largest challeges or mac-

roecoomic policies as they ted to be big relative

to the size o the trade ows ad they ca uctuate

very quickly.

Some o these iows have bee pulled by im-

provemets i macroecoomic policies ad by

the better growth prospects tha those o the i-

dustrialized coutries. Most o these ows were

i the orm o oreig direct ivestmet ad log-

term ledig, which by ad large are perceived

as good capital iows sice they improve the

growth prospects ad are ot perceived to icrease

acial vulerability.

Te mai headache has bee created by the short-

term capital iows that to some extet are beig

pushed by the very low iterest rates that prevaili the idustrialized coutries, ad that come to

take advatage o the carry trade opportuities

that the short-term iterest rate dieretials cre-

ate. Tese ows, as experiece shows, are likely to

be very volatile ad could leave as quickly as they

came i, leadig to large ad disruptive uctua-

tios i the exchage rate.

A reversal o these ows is likely to take place i

ad whe U.S. iterest rates rise rom the curret

extremely low levels, which is likely to happe i

the ext couple o years, ad that could lead to

the pheomeo that Guillermo Calvo et al have

termed the sudde stops.

While most ecoomists ad policymakers agree

that it makes sese to try to limit the uctuatios

i the exchage rate, the policy respose is ot al-

ways clear or eective. For istace, the eorts to

avoid a omial appreciatio through sterilized

itervetio i the oreig exchage market could

lead to a vicious cycle as they could lead to higher

domestic iterest rates, which i tur would lead

to more capital iows.

Te alterative is to limit the short-term ows

through regulatio or the impositio o capi-

tal cotrols. Tere has ot bee ay shortage o

imagiatio i this eld, as coutries have tried

everythig o the meu. Uortuately, all these

policies work or a ew moths at best, but over

time they lose their eectiveess as the acial

markets d ways to elude them. Coutries ace

great diculties i closig all the loopholes with-

out severely aectig trade ows ad ivestmet.

Whe coutries put cotrols o short-term ows,

ivestors d that the acial time machie ca

trasorm 90-day credits ito two- or three-year


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loas. Whe there are limits o acial loas, all

o sudde the coutry is ooded with commercial

loas. Te itroductio o a tax o capital iows

ca at best have short-term eects, as is the case

with dual exchage rate systems that have a xed

exchage rate or commercial trasactios ad a

exible rate or acial oes.

Tere are dieret types o currecy wars. Tis

istace with Chia is the traditioal beggar-thy-

eighbor trade war, i which coutries are co-

cered about trade surpluses ad decits. I Lati

America, the problem is, to some extet, related

to large widalls i terms o trade. But recetly, it

has bee maily drive by short-term capital i-

ows that have proved to be very volatile ad will

likely revert very quickly i respose to a rise i

U.S. iterest rates. It makes sese to try to smooththem, but it wot be easy.


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Opportunity or Asia and the G-20

Peter Drysdale

The most importat outcome o the Seoul G-20

Summit will be reassurace rom G-20 lead-

ers o strog commitmet to macroecoomic

recovery strategies ad structural chages eed-

ed or log-term balaced growth ad sustaied

developmet. As the most dyamic i the global

ecoomy, Asia ecoomies have a especially im-

portat role i settig the course ahead or rebal-

aced ad sustaiable growth.

Te recovery o some idustrialized ecoomies is

still ragile ad will require cotiuig expasio-

ary measures, withi the bouds o debt sustai-

ability (which are a greater costrait or Europe).

IMF projectios show that global imbalaces will

rise or some time as growth recovers i the period

to 2015. With U.S. uemploymet still above 9

percet, Asia ecoomies must rely less o the U.S.

cosumer or al demad ad more o domestic

ad regioal demad as Asia cotiues to icrease

i importace as a growth pole i the world

ecoomy. I much o Asia ad the other emergig

ecoomies, strog growth will require moderatio

o govermet spedig to allow private spedig

to accelerate without iatio.

Worldwide depressio i 2008 was averted due i

part to the major ecoomies workig together to

re-start their acial markets ad reraiig rom

systematic resort to protectioism or competitive

devaluatios. Teir actios created the codeceeeded to stimulate demad sucietly to avoid a

depressio by settig scal ad moetary policy ap-

propriate to atioal ecoomic coditios.

I 2010, leaders ca agree to cotiue the coor-

diatio o policies, iormed by the work they

commissioed rom the IMF. Te IMFs Mutual

Emeritus Proessor o Economics, Australian National University; Head o theEast Asian Bureau o Economic Research; Co-editor, East Asia Forum

ausTRal

Soogil YougPresident, Korea National Strategy Institute; Chair, Korean National Committee orPacifc Economic Cooperation; Chair, Presidential Committee on Green Growth,Te Republic o Korea

Adjustmet Process scearios set out two vastly

dieret prospects or employmet ad livig

stadards i the ext ve years:

eitherweak recovery, ad a secod wave o

recessio, with poor coordiatio o macro-

ecoomic policy settigs;

ora sustaied recovery rom the global a-

cial crisis with risig employmet, i G-20

govermets adopt a approach that is co-

ordiated aroud rebalacig growth.

Sustaied ad balaced growth will eed to be

backed by commitmet rom leaders to careully

calibrate macroecoomic policies, icludig ex-

chage rate policies ad structural chage policies

that maitai codece i markets at the same

time as they address the udametal causes o im-

balace i atioal ecoomies as well as the global

ecoomy.

Correctig imbalaces will require cotiued

macroecoomic policy adjustmet ad scal ad

structural reorm i both coutries with curret

accout decits ad those with curret accout

surpluses. I coutries with curret accout

surpluses, o which there are several i Asia, the

priority should be o substatial restructurig,

which is importat or atioal developmet ad

made easier give a strog capacity or growth.

While curret accout surpluses are allig i key

Asia ecoomies, it will be importat to prevet

these surpluses growig agai. Asia members o

the G-20, drawig o their ow past experiece

ad success, ca help to set ambitios or structural

reorm ad chage that are crucial to achievig

more balaced ad sustaiable global growth.


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Tere are two key lessos here: rst, rebalacig

strategies will ot succeed i they are oe-dime-

sioalthey eed to ivolve a suite o comple-

metary policy measures; secod, they take time

to implemet. Tere are o simple measures that

ca make large imbalaces disappear rapidly. But

establishig codece i the directio o chage

will restore the codece o ivestors, cosumersad bakers that the recovery is sustaiable.

Oe vital compoet o policies or rebalacig

growth is structural reorms that stregthe do-

mestic demad ad improve productivity through

measures such as:

stregtheed social saety ets icludig pe-

sio ad health isurace programs;

ehaced physical irastructure that reduces

supply bottleecks to sustaiable growth;

reorm o actor markets to remove distortig

subsidies to idustrial productio; ad

ivestmet i the egies o sustaiable log-

term growth, such as eergy ad resource e-

ciecy, reewable ad clea eergies, gree

trasportatio ad cities, ad quality-o-lie

services like health care ad saitatio.

Household demad ca be expected to expad as

wages rise, labor mobility is ehaced ad house-

holds are provided with capital icome-geeratig

opportuities. Te structure ad timig o particu-

lar reorms will deped o each coutrys ecoomic

circumstaces ad istitutios.

A secod importat compoet is exchage

rate policy ad greater exchage rate exibility.

Icreased exchage rate exibility is ecessary iorder to ecourage relative price shifs betwee

tradable ad o-tradable activities ad ecoomic

rebalacig. Exchage rate exibility will assist i

shifig the ecoomy toward more productive use

o resources ad make it easier to cotrol iatio

ad maage exteral shocks. Te Asia experiece

i the 1980s ad the 1990s shows that major

Asia ecoomies have a strog atioal iterest

i deployig icreasigly exible exchage rate

adjustmet or these tasks alog with supportive

moetary policy. Te structure ad timig o such

reorms will deped o each coutrys ecoomic

circumstaces ad istitutios decisio.

Recet suggestios or a multilaterally-agreedupo exchage rate re-aligmet do ot suit pres-

et circumstaces. Ideed, very large oe-o ex-

chage rate chages would likely disrupt trade ad

currecy markets ad could threate the stability

o the iteratioal moetary system.

Te idea that exchage rate re-aligmets should

aloe carry most o the burde o correctig a-

tioal ad global ecoomic imbalaces is seriously

misguided. Reorm o structural impedimets i

atioal acial, actor ad commodity markets

will also be eeded. Sustaied recovery eeds ex-

ible exchage rate regimes, ot a series o ego-

tiated adjustmets. Exchage rate exibility will

sesibly costitute oe part o a package o policy

measures available to govermets.

Eective coordiatio to uderpi uture stabil-

ity o the iteratioal moetary system could be

udermied by asymmetrical adjustmet betwee

decit ad surplus coutries. While curret ac-

cout decit coutries caot sustai their decits

ad are orced to ru dow their reserves or depre-

ciate their currecies, surplus coutries ca d it

politically coveiet to maitai omial values

o exchage rates ad ru up oreig exchage re-

serves. Cooperative actio to avoid this is highly

desirable ad it will deped o surplus coutries

havig more say ad codece i iteratioal

moetary arragemets. IMF goverace reorm

is essetial to buildig this codece.

O the questio o makig acial market regu-

latio more eective ad robust, Asia could make

a positive cotributio to stregtheig global -

acial system goverace by establishig a uc-

tioig Asia Fiacial Stability Dialogue that

draws i the whole regio ad complemets the

work o the Fiacial Stability Board. Tis would


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8

add to the work o buildig codece globally i

acial market regulatio.

Te task o avoidig a secod roud o recessioary

pressure o the iteratioal ecoomy iduced

by trade or currecy measures highlights the

importace o usig the widow o political

opportuity that exists i 2011prior to majorpolitical trasitios i a umber o coutries

scheduled or 2012to complete the Doha roud.

Te Seoul ageda eeds to uderscore the cetral-

ity o trade policy to recovery ad developmet.

Te Doha Roud has dragged o or ar too log.

At Seoul, leaders ca agree o a balace o iter-

ests ad direct egotiators to complete the Doha

Roud as soo as possible ad o later tha the

ed o 2011. Te time has come to give trade

miisters permissio to coclude the Roud to

lock i the gais already available. Tey ca the

address the issue o WO reorm, its egotiatig

modalities ad the problem o bilateral ad

regioal arragemets ot beig subject to

eective disciplie so that they serve core global

trade objectives at a critical time or opeess. Re-

positioig the WO so that it ca deal with all

dimesios o cotemporary iteratioal com-

merce is cetral to the G-20s developmet ageda.

Te G-20 provides the opportuity or Asia eco-

omies to address all these ad other problems that

eed global solutios. Asia ecoomies eed to de-

cide how best to take up these issues through the

G-20, especially by puttig orward optios which

support ad complemet the iterests o other re-

gios. Coscious that the G-20 process will work

most eectively i there are clear priorities give tothe discussio o major issues, it will be helpul to

ag ad positio issues o importace to the regio

or uture meetigs ad give uller cosideratio to

issues o global priority through regioal meetigs.

A early opportuity to establish productive iter-

actio betwee the global ad regioal processes is

the Yokohama APEC leaders summit immediately

ollowig the G-20 Seoul Summit. APEC leaders

ca lik the pursuit o their ve-part growth strategy

to G-20 priorities, with emphasis o rebalacig

growth. Careul thought eeds to be give to how

Asia members ca best lik their participatio i

tras-Pacic ad East Asia regioal arragemets

to their idividual resposibilities i the G-20 ad

to the represetatio o broader regioal iterests.

How regioal structures should develop or be re-

orgaized to serve these purposes is a importat

issue or urther cosideratio.


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9

Te G-20 and Development: Treerying riads

Pedro S. Mala

The triads reerred to i this ote are tryig

i the dictioary sese o severely straiig

the powers o edurace; i this case, o the

G-20 atioal govermets ad their regioal ad

global set o complex iteractios.

Te rst triad is the oe stated i 2010 by the G-20

itsel as the highest priority: (1) to saeguard ad

sustai the recovery, (2) to stregthe the a-

cial system agaist risk ad (3) to lay the ouda-

tios or strog, sustaiable ad balaced growth.

I act, the G-20 wordig metios the three i

oe sigle setece, idicatig rightly so that they

should be see as related.

Te secod triad is the slightly older oe o 2008

at the height o the crisis ad it is made o: (1) cri-

sis resolutio, (2) uture crises prevetio ad (3)

loger-term structural ad istitutioal reorms.

O course, these three also should be see as re-

lated.

Te third triad expresses the act that, although

we live i a complex global ecoomy, key political

decisios are still take atioallyeve though

these decisios are ofe critically aected by real

or perceived regioal ad/or global costraits.

Tereore, the third triad is the (1) atioal, (2) re-

gioal ad (3) global iteractios so udametal

to the possibilities o movig ahead with the objec-

tives o the other two triads.

Let me start with the items umbered 1 i the rst

two triads. Te pair does ot express exactly the

same objectives. Saeguardig ad sustaiig the

recovery may ot oly lead some to believe that the

paic o late 2008 ad early 2009 is overwhich is

truebut also that the crisis has bee resolved

Former Minister o Finance, Brazil; Former President o the Brazilian CentralBank; Current Chairman, Board o Directors, Unibanco

BRazl

ad the recovery is well uderway i the idustri-

alized world.

But it is icreasigly clear that the cosequeces o

the greatest crisis sice the 1930s i the developed

world are still very much with us i terms o their

eects o preset ad ear uture ecoomic activ-

ity, rates o uemploymet ad sigicat ucer-

taities about the uture.

With regard to the items umbered 2 i the rst

two triads, they are agai ot exactly the same.

I act, uture crises prevetio goes well beyod

the call or stregtheig the acial system

agaist risk, critically importat as it is. It is true

that much progress has bee achieved. But there

has bee o al agreemet yet o the basic ele-

mets o a resolutio authority or dealig with

systemically importat acial istitutios with

several cross-border operatios, which are too big

ad too itercoected to ail, or to be rescued, or

to be cotrolled by oe sigle atioal or regioal

regulator/supervisor.

Ad resolutio authority resposibilities as well

as a higher degree o iteratioal cooperatio be-

twee regulators ad supervisors are essetial or

both stregtheig the acial system agaist

risk ad prevetig uture crisis. But the preve-

tio o uture crisis goes well beyod the world

o acial regulatio, supervisio ad stadard-

settig.

Tis brigs us to the items umbered 3 i the rst

two triadsad to their relatios with the third tri-

ad. o use the old rhetorical structure o the trade,

progress has bee achieved eve though may

serious risks remai. Tereore, there is o room


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10

whatsoever or complacecy. I act, the crisis lef

deep scars i the real ad acial sectors o the

developed world. Ad the ature o their gover-

mets resposes to the crisis, while absolutely ec-

essary to avoid the worst o the crisis, created huge

ad serious log-term scal problems that eed to

be addressed. Tis will take years ad ivolve pai-

ul political decisios about reorms.

It is a act that these medium- ad loger-term

structural ad istitutioal reorms, which are

such a essetial part o the layig o the codi-

tios or strog, sustaied ad balaced global

growth, deped o the short- to medium-term

resolutio o items 1 ad 2 i the rst two triads.

But the act remais that the items umbered 3 i

these triads are the truly udametal oes or the

G-20s developmet ageda, i it really wats to

have oe that is systematically pursued.

It remais to be see i oe wats to look beyod

declaratios ad commuiqus siged by a ever-

chagig compositio o idividuals that are tem-

porarily occupyig the positios o head o state or

head o govermet.

Ideed, it is very importat to always keep i mid

that behid most i ot all iteratioal bod-

ies, istitutios, orgaizatios ad arragemets,

such as the G-20, we have atioal govermets

with their ow diverse, domestic, regioal ad

global iterests, priorities ad chagig views ad

balacig acts betwee cotiuity ad chage.

Such is lie, as I wrote i a recet cotributio or

a Brookigs-Korea Developmet Istitute semiar

i Seoul, but so is the act that the eectiveess,

iuece ad potetial role o the G-20 will be,

whe push comes to shove, o more tha what the

govermets behid it may agree they wat it to

be.

I am coviced that most, i ot all, o the G-20

members wat seriously to move ahead with the

rst two triads metioed i this ote, especially

items 1 ad 2 o both. I am also coviced that

most, i ot all, realize i geeral the critical rel-

evace o items 3 o both rst triads. Te G-20

could perhaps help i the truly tryig task o at-

temptig to stimulate its members to idetiy the

specic structural ad istitutioal reorms, which

are deemed to be essetial or each o them. Tese

reorms will be ievitably cotext-specic. Tis

act o lie, rather tha hidrace, could perhaps

help to achieve a costructive egagemet o its

membership.

Givig some more structure ad operatioal co-

tet to the idea already agreed upo o a mutual

assessmet program withi the G-20 may help to

move the process alog ad represet a impor-

tat cotributio to strog, sustaied ad bal-

aced growth i the world. It is ot easy. It will

ever be. It is very, very tryig. But the G-20, as a

group, has truly o alterative i it wats to survive

as a relevat, livig arragemet with a post-crisis

developmet ageda.


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11

Te G-20: Development and the Roleo Developing Countries

Canada

Mamoha Agarwal Senior Visiting Fellow, Center or International Governance Innovation

Joh WhalleyDistinguished Fellow, Center or International Governance Innovation; Proessor,Center or the Study o International Economic Relations, University o Western Ontario

troctio: deveomet o teae

Te G-20 leaders agreed at Pittsburgh last year

o a ramework or strog, sustaiable ad bal-

aced growth. Te leaders meetig i oroto i

Jue o this year cocluded that their moetary

ad scal actios had stemmed the crisis ad the

world ecoomy was begiig to recover. Further-

more, they were egaged i regulatory reorm o

the global acial system. Te leaders bega to

tackle loger-term issues ad set up a Develop-

met Policy Workig Group. Te workig group

is to draw up a pla or actio or discussio by

the G-20 leaders i Seoul ollowed by discussio o

its implemetatio i Frace i 2011. Te ageda

or the Korea Summit icludes developmet. It

calls or rebalacig the world ecoomy i terms

o reducig the icome gap betwee coutries, i

particular the developig coutries ad developedcoutries. Tis is dieret rom rebalacig i

terms o curret accout surpluses ad decits.

growi teret i te g-20 ideveoi Cotrie

Te iterest o developig coutries i the G-20

process ad its potetial is growig judgig rom

the press coverage ad iterest at thik taks. At

the same time, there is a wait-ad-see attitude as to

what the G-20 will be able to deliver. Seve G-20coutries are members o the G-77, the group that

speaks or developig coutries at the Uited na-

tios. May o these G-77 members questio the le-

gitimacy o the G-20 ad wat all actios chaeled

through the U.n. Te G-20 will aect the dyamics

o the G-77 at the U.n. Tus, deliverig o develop-

met would ehace the legitimacy o the G-20.

Fetre of Recet growt ideveoi Cotrie

Rapid growth i may developig coutries i

the two to three years beore the global acial

crisis was based partly o a strog export peror-

mace as export volumes jumped ad commodity

prices rose sharply. May coutries could pursue

growth-orieted policies while maitaiig a vi-

able curret accout because o risig exports ad

remittaces. For precautioary reasos, may de-

velopig coutries added substatial amouts to

their iteratioal reserves despite stagat aid,

though the desire to maitai export competitive-

ess also probably played a role.

Durig the acial crisis, developig coutries

as a whole experieced decreased export earigs

ad outows o private capital as well as declies

i remittaces. However, the larger developigcoutries, which are by ad large members o the

G-20, have show cosiderable resiliece ad have

retured to a robust growth path. Tis cotrasts

with the perormace o the developed coutries

ad may smaller developig coutries, where

there has bee a recovery, but oe which remais

weak ad ragile.

Te issues beore the G-20 Summit at Korea are to

ulll the promise o strog sustaiable ad bal-

aced growth by spreadig robust growth to theweak ecoomies.

sort-Term e

Te mai short-term issues or the G-20 are push-

ig ahead with the reorm o the global acial

system ad rebalacig o the ecoomies. Reorm


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12

o the acial system has proceeded, catalyzig

o the work already doe by atioal ad itera-

tioal istitutios. Te developig coutries seem

to have agreed to the processes ad ature o these

reorms, as they are based o aalysis ad experi-

ece ad also as there seems to be suciet leeway

or idividual coutries to adopt measures coso-

at with their eeds.

Te eed to tackle curret accout imbalaces re-

mais problematic ad there is o ull agreemet

yet o the meas. Immediate ears about a out-

break o currecy wars seem to have abated with

the recet agreemet amog G-20 ace mi-

isters to move toward more market-determied

exchage rates. However, coutries such as Brazil

ad Idia are callig or iteratioal actio to

deal with large capital iows. Tere seems to be

growig recogitio by these ad other coutries

that more policy coordiatio is eeded at the i-

teratioal level to deal with issues such as curret

accout imbalaces ad capital ows. But urther

developmet o the ecessary iteratioal isti-

tutioal arragemets or udertakig such co-

ordiatio may be required beore agreemet o

coordiatio measures ca be reached.

lo-Term e

Rebalacig curret accout imbalaces is a vital

issue. Over the loger term, rebalacig will occur

whe there is a shif to developmet strategies that

place greater reliace o domestic demad. Faster

growth i poorer developig coutries as called

or by the ageda or Korea may eed to be supple-

meted by usig surpluses to balace decits that

may result rom this aster growth.

Fici of hier leve of

vetmet

Growth could be ostered i laggig developig

coutries by higher rates o ivestmet, aced

by the restoratio o aid ows ad improvig the

access o these coutries to private capital mar-

kets. Aid by itsel would help maitai a credible

balace o paymets positio ad so ecourage

private ows. Aother possible source or i-

creased ivestmets i the poorer coutries could

be the excess savigs o surplus coutries. Reduc-

tio o, say, the U.S. decit would be achieved

without icreased cosumptio i Chia, which

is possible oly i the loger ru, but by larger

decits i other developig coutries, may o

whom are curretly ruig surpluses or verysmall decits.

Aid Effectiveness

Te G-20 should ot oly look at the quatity o

aid but cosider ways to icrease its eectiveess.

Aid or agriculture ad irastructure has bee de-

cliig i importace.

Te G7 has already called or icreased aid to

agriculture. Te Seoul G-20 Summit is likely to

call or icreased ivestmet i irastructure.

Icreased aid or agriculture ad irastructure

is likely to raise aid eectiveess, which could

be urther ehaced through goverace reorm

both i the recipiet coutries as well as multi-

lateral ad bilateral doors. For istace, poverty

i the middle-icome coutries may be more e-

ectively tackled ot by more aid but improvig

its delivery through civil society ivolvemet. Re-

mittaces are eective i raisig ivestmet levels

i the recipiet coutries ad more remittaces

could be ecouraged through reducig the cost o

trasers. Stregtheig aid or trade ad a time

rame or utyig all aid are other issues that the

G-20 could cosider.

Foreig direct ivestmet ows are more eective

i raisig growth tha domestic ivestmet. Te

G-20 should discuss what measures ca be take

to icrease FDI ows, particularly to smaller poor

coutries, which have very limited access to iter-atioal acial markets.

growt proctivit i arictre

Growth i the poorer coutries is very closely relat-

ed to agricultural perormace as bore out by the

experiece o coutries i sub-Sahara Arica. Poor


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Thnk Tank 20:


13

perormace o GDP i the 1980s ad 1990s ad

better perormace more recetly were mirrored

by agricultural growth. Tere has bee a substa-

tial slowdow worldwide i growth o agricultural

output, causig sharply icreased prices i 2007-08

ad leadig to calls or the eed to improve ood

security. Ivestmet i agriculture could be raised

through more oreig aid or the sector. Te shifi aid toward humaitaria assistace has bee

sel-reiorcig i that whe less aid goes or pro-

ductio, productio shortalls are more requet

or o a greater magitude, leadig to the eed or

humaitaria relie. I these circumstaces, larger

allocatios or productive purposes ca occur i

the short ru oly i the overall amout o aid is i-

creased substatially, sice i the short ru huma-

itaria eeds must be met. Raisig the growth o

agricultural output requires raisig the rate o pro-

ductivity growth sice there is very limited scope

or area expasio. Raisig productivity requires

better techologies ad this i tur requires more

support or research. Te G-20 eeds urgetly to

put i place the ecessary reorms as pipoited by

evaluatios o the Cosultative Group or Itera-

tioal Agricultural Research.

Oe o the issues i raisig productivity i de-

velopig coutries is that o techology traser,

which is also importat or higher productivity i

idustry ad icreasigly or reducig emissios

ad limitig the damage caused by climate chage.

Te G-20 might eed to look at rules goverig i-

tellectual property rights to examie whether the

relative balace betwee iovators ad imitators

eeds adjustig.

Cocio

Tere is growig iterest i developig coutries

i the potetial o the G-20 i meetig the eeds

o iteratioal ecoomic goverace. But there

is ucertaity as to what the G-20 will be able to

achieve. acklig developmet issues would help

i icreasig its legitimacy i the eyes o coutries

excluded rom the G-20. Tere is broad agreemet

o the eed to tackle the issues o ecoomic imbal-

aces, though coutries dier o the relative im-

portace o curret accout surpluses ad decits,

the eectiveess o currecy movemets i deal-

ig with this problem ad the large capital iows

ito may developig coutries. May o these is-

sues are iterrelated ad poit to the eed or more

policy coordiatio. Agreemet o restructurig

o the growth processes o developmet so that

there is greater depedece o domestic demad

might be more easily achieved i the growth rate

is raised i may poorer coutries, where growth

is still weak ad ragile. Icreases i aid, greater

access to private capital or these ecoomies, ad

the developmet ad spread o more productive

agricultural techologies would all cotribute to

raisig the growth rate.


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14

Making Big Deals to Help the World

Qiao Yu Proessor, School o Public Policy and Management, singhua University

Chna

Leaders at the upcomig G-20 Summit i Seoul

should make two big deals to reduce the ega-

tive beggar-thyeighbor policies o mixig

debt uel ad moey ease ad create a strategy to

ehace global ecoomic developmet.

E Ber-Tneibor poicie

Recet currecy disputes edager the global eco-

omic recovery. Ideed, this is rooted i the pre-

vailig global acial system characterized by

a imbalaced oligarchic market structure, where

the U.S. Federal Reserve is the market leader o

the mai trasactio meas with the Europea

Cetral Bak, Bak o Japa ad Bak o Eglad

beig the ollowers. Te Feds sel-disciplie is the

sole implicit saeguard or this arragemet. U-

der this structure, i ad oly i the supply o U.S.

dollars is predicable ad stable, do curret accout

ows o tradig coutriesso-called market u-

dametalsdetermie exchage rates or prices

o respective currecies agaist the dollar. Other-

wise, the discretioary provisio o the U.S. dollars

govers exchage rate volatility ad creates pote-

tial currecy disputes. Ay statemetregardless

o ocial commuiqu or editorial commets

that igores this key eature but reiterates isist-

ig i priciple o market-determied exchage

rates are hollow ad meaigless.

Over the past two years, the U.S. Fed has ijectedbillios o dollars to save the U.S. acial sys-

tem. Meawhile, the Fed has also kept pritig

more moey to boost up the iatio expecta-

tio ad stimulate the sluggish U.S. ecoomy. But

oe should always remember that o govermet

has the magic to create somethig out o oth-

ig. needless to say, the Feds provisio o global

public goodsthe stable ad reliable U.S. dollar

is subordiated to U.S. domestic iterests. I addi-

tio, short-term ecoomic goals are most likely to

be attaied at the cost o iteratioal moetary

stability i the loger term. Over time, the a-

cial mess could evetually be cleared up through

dilutig U.S. greeback at best ad deaultig it at

worst. Tis may be the optimal optio or the U.S.

Federal Reserve, but the rest o the world will bear

the egative exterality as a byproducta break-

dow o global acial order ad the subsequet

dwidlig o iteratioal trade. As such, the eas-

ig o moetary policy by the U.S. Federal Reserve

has agai ueled the uoldig global acial u-

rest. Tis cure is illustrated by a Chiese proverb

o drikig poisoous liquid to quech thirst.

History repeatedly shows us these bitter lessos, as

exemplied by the collapse o the Bretto Woods

system i the early 1970s.

o prevet the world ecoomy rom spiralig ito

a abyss, leaders o the G-20 must take their ude-

iable resposibility o maitaiig global public

goods through multilateral compromises. G-20

leaders ca make the rst big deal i Seoul by

agreeig to do the ollowig:

he U.S. ceases radom ad discretioary

moey pritig ad slowly phases out its

ear-zero iterest rate policy.

Other major iteratioal moey suppliers

ollow these practices ad maitai basi-

cally stable bilateral exchage rates agaist

the dollar.

he ecoomies with large trade surpluses,

like Chia, alig exchage rates agaist the


19/59


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Thnk Tank 20:


16

Te G-20 and the Currency War

Jea Pisai-FerryDirector, Bruegel; Member o the French Prime Ministers Council o Economic Analysis;Member, European Commissions consultative Group o Policy Analysis; Proessor,Universit de Paris-Dauphine

FRanCEEuROpEan u

At their meetig o October 23 i Gyeogju,

the G-20 ace miisters agreed to recom-

mit to more market-determied exchage

rates ad rerai rom competitive devaluatios.

At a time whe the currecy war theme has cap-

tured imagiatios, this is a welcome pledge. But it

does ot solve the issue or the G-20.

O the ace o it, every coutry seems to be aim-

ig at a depreciatio o its currecyor at least

at avoidig a appreciatio: Japa with uilateral

oreig exchage itervetio; the U.S. ad the

U.K. through large-scale purchase o govermet

bods; Chia through keepig a almost xed lik

vis--vis a depreciatig U.S. dollar; ad emergig

coutries all over the world through a array o

techiques to discourage capital iows or to ward

o their eects o the exchage rate. Oly the euro

area seems to be buckig this tred, as the Euro-

pea Cetral Bak has take the rst steps toward

a exit rom exceptioal crisis measures ad has

allowed a rise i the short-term iterest rate. But

eve it caot be idieret to the risks o appre-

ciatio; a persistetly strog euro would seriously

complicate the ecoomic adjustmet uder way

i coutries uder stress like Spai, Portugal ad

Irelad.

Tis looks amiliar. Ideed, it took two years a-

ter the crash o the 1930s, rom October 1929 to

September 1931, or Britai to sever the pouds

lik to gold ad set i motio a currecy war. Oe

coutry afer aother wet o gold, i eect tryig

to export its uemploymet. But it became evidet

that everybody caot have a weak currecy at the

same time ad a major lesso rom the 1930s is

that oe o the roles o the multilateral system is to

prevet utile beggar-thy-eighbor depreciatio.

wo years have passed sice the climax o the -

acial crisis i September 2008. It would seem

the same chai o evets is beig set i motio,

with the same delay. Tis readig is, however, too

simple as it igores two sigicat asymmetries

withi the world ecoomy.

Te rst asymmetry is betwee the U.S. ad the

euro area, with the Uited Kigdom lyig appro-

priately i betwee. Both have suered a major

acial shock ad a major recessio. But at this

stage o the recovery, policy courses are set to di-

verge or a series o domestic reasos. Te extet

o private deleveragig that remais to be doe is

deitely larger i the Uited States. I additio

as a result o the surprisig productivity surge

i the U.S. over the last two years, which has ot

take place i Europe, the employmet situatio

is much worse, whereas tolerace or uemploy-

met is much lower. Te Europeas are more pes-

simistic about the crisis-iduced damages to the

supply side, implyig a lower perceived amout

o slack. Fially, the Greek sovereig debt crisis

ad tesios over the Irish, Portuguese ad Spa-

ish debts have stregtheed Europes cocer over

public aces, whereas the most likely outlook i

the U.S. is a persistet stalemate. I years to come,

there will be much more emphasis o supportig

the demad side i the U.S. ad this is boud to

imply a lower U.S. dollar vis--vis the euro. Te

ew roud o quatitative easig kow as QE2 isjust part o this broader picture.

Te secod asymmetry is betwee the advaced

ad the emergig worlds. rue, both have suered

rom the crisis but ot at all i the same way. Ac-

cordig to the IMFs latest orecast, this year real

output i the advaced coutries will still be below


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Thnk Tank 20:


17

the 2007 level, whereas it will be 16 percet higher

i emergig ad developig coutries. Lookig

ahead, advaced coutries are set to cotiue to

struggle with the allout o the 2008 crisis ad the

dire state o public aces. Te IMF also reckos

that the advaced coutries eed to cut spedig

or icrease taxes by 9 percetage poits o GDP

o average over the curret decade i they wat tobrig the public debt ratio to 60 percet o GDP by

2030. Te emergig coutries, however, oly eed

mior cosolidatio to keep their debt ratio at 40

percet o GDP. Tis implies that the ability o ad-

vaced coutries to geerate domestic demad is

likely to be dimiished or several years to come,

whereas othig o this sort applies to emergig

ad developig coutries. Here agai, a asymme-

try o this magitude would i ay sesible model

require a sigicat adjustmet o relative prices.

Te relative price o the goods produced i the ad-

vaced coutriestheir real exchage rateeeds

to depreciate vis--vis the emergig coutries i

order to compesate or the expected shortall i

iteral demad.

Tus, there is a uambiguous eed or a double

real exchage rate rebalacig, both withi the

advaced coutries group ad betwee it ad the

emergig coutries group.

Te rst oe is takig place. Tere has bee sig-

icat volatility i the dollar-euro exchage rate;

the dollar rst appreciated as it played the role o a

sae have, the it depreciated, the it appreciated

agai at the time o the euro crisis ad it has bee

depreciatig or a ew moths ow. But as capital

ows reely across the Atlatic, ay chage i ex-

pectatios about the uture policy course is ista-

taeously reected i the dollar-euro rate.

But the secod rebalacig is ot happeig.

Compared to July 2007, at the oset o the crisis,

exchage rates betwee advaced ad emergig

coutries have ot appreciated. O the cotrary,

they have depreciated. At rst sight, this is ot easy

to assess because we are used to moitorig ex-

chage rates vis--vis the U.S. dollar, which itsel is

a volatile yardstick. But it is possible to compute a

eective exchage rate betwee the major emergig

ecoomies ad the major advaced ecoomies that

takes or each emergig coutry a trade-weighted

average o its exchage rates vis--vis the mai ad-

vaced coutries, ad the averages over emergig

coutries. I September, this idex was dow more

tha 20 percet with respect to July 2007, both i

omial ad i real terms. So the adjustmet that

eeds to take place has i act ot happeed at all.

Afer the ailure o Lehma Brothers i September

2008, most emergig coutries suered rom sud-

de capital outows that depreciated their exchage

rates ad this has ot bee ully corrected. Further-

more, several importat emergig coutries target

their exchage rates vis--vis the U.S. dollar, which

is ow the weakest o the three major currecies.

It is easy to uderstad why the adjustmet is

hampered. For each cetral bak, the questio is

ot what happes to the emergig coutries group

as a whole but what happes to its ow currecy

vis--vis competitors. Brazil does ot wat to ap-

preciate vis--vis other Lati America coutries,

Tailad does ot wat to appreciate vis--vis oth-

er Asia coutries ad o oe wats to appreciate

vis--vis Chia. At the same time, Chias export

regios ear that a yua appreciatio would lead

labor-itesive idustries to migrate to Vietam

or Bagladesh. So each ad every emergig cou-

try resists appreciatio idividually. Tis is a typi-

cal collective actio problem, whereby a chage

that is i the commo iterest is hampered by lack

o coordiatio amog the players.

Ultimately, ecoomic logic is goig to prevail ad

the emergig currecies are goig to appreciate i

real terms. Te dierece is that i the omial ex-

chage rate remais uchaged, advaced cou-

tries will have to go through a protracted period

o low iatio or eve deatio, which will makethe debt burde eve harder to bear, ad emergig

coutries will have to eter a iatioary period

as capital will ow i, drive up reserves, icrease

moey supply ad cosequetly result i a price

icrease. For both sides, it would be much more

desirable to let the adjustmet take place through

a chage i the omial exchage rate.


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18

What this aalysis implies is that the traditioal

cotroversy over the Chiese exchage rate policy

is by o meas a bilateral U.S.-Chia trade issue

but a bigger global macroecoomic problem be-

twee the advaced ad emergig coutries. Tis

is ot to say that the yua issue is secod-order

because it is ot. But its importace does ot come

rom the trade imbalace betwee the U.S. adChia rather it comes rom the act that Beijig

holds the key to a global adjustmet ivolvig

most o the advaced ad emergig world.

Oe o the primary tasks o iteratioal orgai-

zatios is to help solve collective actio problems.

Te G-20 ad the IMF did this at the time o the

global recessio. Te IMF should also take the ii-

tiative o the currecy rot by proposig to the

G-20 a coceptual ramework or act-based dis-

cussios, by providig a objective assessmet o

the adjustmets that are eeded ad by acilitat-

ig settlemet withi the multilateral ramework.

neither the IMF or the G-20 ca substitute orgovermets that eed to make choices i their

atioal iterest. But they ca help cosiderably i

the search or a solutio.


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19

Te G-20 Seizure o Development:Inspiration, Vision and Action

Jacques MistralHead o Economic Research, Institut ranais des relations internationales; Formeradvisor to the Directeur gnral du rsor et de la politique, Ministre des fnances-Paris; Former member o the French Prime Ministers Council o Economic Analysis

FRanCE

The G-20 will meet ext i november i Seoul

ad Korea has made developmet a distic-

tive issue o this summit. Tis was a ispired

proposal ad othig i the preset ageda o the

leaders is possibly more sigicat tha this choice.

From 2000 oward, the G8 has ivited a ever-

icreasig umber o developig coutries to its

meetigs ad used its weight to advace progress

o global poverty reductio. Te 2005 G8 Gle-

eagles Summit i Scotlad possibly marked the

apogee o these eorts, where ambitious goals were

agreed upo to icrease levels o oreig aid ad

to secure broader ad deeper debt relie. Sigi-

cat steps orward have bee made ad traditioal

aid ows have rise 36 percet betwee 2004 ad

2010.

Despite these eorts ad progress, it became i-

creasigly clear that both the G8 summit ormat

ad the developmet ramework had to chage

dramatically. Te acial crisis served as a cata-

lyst ad made the rst chage possible ad urget;

the G-20 is by deitio a more represetative ad

more iclusive group tha its older cousi. While

the G-20 was iitially ocused o acial issues

ad will rightly pursue this ageda goig orward,

it is more tha welcome that the G-20 summits

broade their madate ad specically express i-

terest i developmet.

Tis is particularly welcome uder the Korea

presidecy sice Korea really has a powerul mes-

sage to share regardig developmet. Tere is o

other coutry i the world, which was a poor ad

aid-receivig atio ad i just a ew decades

tured itsel ito a powerul idustrial ecoomy

ad a door coutry. Tis uiquely successul

experiece deserves to be shared with other cou-

tries ad the iitiatives o the Korea presidecy

i this regard deserve to be strogly supported by

other atios.

Te G-20 must look beyod oreig assistace ad

embrace a broader developmet policy toolkit. For

years, aid has bee the most visible policy used to

advace developmet ad it certaily remais use-

ul to iitiate the rst steps i developmet. How-

ever, developmet ca o more be uderstood as it

was i the past, as a traspositio o wester reci-

pes. Te prescriptive models, which have bee used

afer the decoloizatio process, are o o help.

rade, ot aid is a excessively restricted sloga

ad the developig world eeds a more compre-

hesive ageda that icorporates all the lessos o

recorded successes. Ad there is o atio better

tha Korea to help desig this ew ramework.

Te G-20 should be committed to assist develop-

ig coutries i achievig their maximum growth

potetial. Tere is certaily o oe size ts all

solutio to this equatio; this is why the Korea

presidecy rightully arraged the Developmet

Workig Group with a view to icorporate dier-

et costraits ad visios ad to make the best

possible use i every atio o well-recogized

successes, which iitially developed withi spe-

cic ecoomic ad political cotexts. no broad

itellectual cosesus, o visio o developmet is

useul i ot ocusig o the idigeous capacity-

buildig o atios.

Give this diversity i the developmet ladscape,

the G-20 has to ocus o its uique ecoomic per-

spective ad more precisely support existig iitia-

tives, such as the U.n. Milleium Developmet


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20

Goals. Developmet ad growth t well with the

objectives o the G-20 because developmet ad

growth cotribute to mitigatig global imbal-

aces. Rich ecoomies are acig a log period o

deleveragig; as a result, global demad will more

sigicatly come rom emergig markets, mas-

sive ivestmets will be eeded to icrease the

supply ad trasportatio o commodities, adlow-icome coutrieslike may i Aricawill

cotiue to diversiy ad ejoy a uprecedeted

growth. All o these treds are importat cotribu-

tios to solvig global ecoomic problems.

So doig, the G-20 ormat deitely cotributes

to ehacig the legitimacy o global summits o

which the G7, G8 ad G8+5 oly delivered a ew

years ago i a dimiished versio. But oetheless

beig a sel-selected group, the questio o legiti-

macy remais uderstadably raised by the 170

other coutries ot i the group. Te additio o

developmet to the ageda is a sure way to reach

out to may o-G-20 coutries ad will be co-

sidered as a ew stage i the G-20 evolutioary

process. O the other had, it is also importat

that the G-20 be able to deliver; it should avoid

embracig too large o ambitios, but istead rely

o its ow comparative advatage, which meas

ocusig o challeges that demad eective glob-

al collective actio

It is clear i this regard that trade, ivestmet,

migratio or evirometal policies i idus-

trialized coutries all iuece poor ad iter-

mediate coutries ad ca either help or hider

developmet. It is importat to recogize that i

times o ecoomic stress, every atio aces com-

petig priorities uder strog domestic political

costraits. Te busiess o the G-20 is to muster

political support at the highest level. Maitaiig

a ope eviromet or trade is amog the most

promiet cotributio o the summits to supply

global public goods. Te spirit o iteratioal co-

operatio, which has bee the most precious asset

to avoid the trasormatio o the great recessio

ito aother great depressio, should be exteded

to alig atioal preereces ad policies ito sup-

portig the worlds poorest coutries.

Should the G-20 take o every aspect o the previ-

ous priorities o the G8s developmet ageda? It

ca reasoably be argued that these issues, such as

securig pledges to cotribute greater amouts o

oreig aid, be lef to other orums; but it is ot so

easy to settle this issue. Due to the trasormatio

o what we ow uderstad about developmet,

this cocept is o more the ecapsulatig cocept

it has bee or decades i directig the policy o

istitutios maagig oreig aid ows. Actio

has more ad more evolved toward global policies

deed by their sectoral dimesio. Ad the result

is sort o a chaos, ucertai juctio or collisio o

idepedet iitiatives, icorporatig a icreas-

ig umber o actors ad producig high costs

ad high ieciecies.

Te problem is ot ew; it has bee o the table at

the OECD as well as at the Uited natios, ad a

coordiatio procedure has eve bee adopted i

the orm o the Paris Declaratio. Uortuately,

experiece suggests that the ruits o this approach

remai modest. It seems to practitioers that o

oe o the eld is the pricipal actor. Tis produces

a sese o irresposibility ad there is the dager

o every istitutio settig up the ag. Private i-

stitutios are playig by their ow rules, deig

withi themselves what is just ad eciet, eve i

it is ar rom cotributig to capacity-buildig. oo

may resources, me ad moey are wasted i this

process. Is it possible to improve the ramework?

Tere is o clear ad deitive recommedatio

to start this revisio. Oe solutio could be to re-

iorce the madate o U.n. agecies, which could

be give a stroger madate or promotig a o-

tio o geeral iterest, or takig exteralities ito

accout ad or deig aggregate objectives or

dieret sectors like health ad educatio. For-

eig aid is o more cosidered as the oly egie

o developmet, but it remais importat i may

parts o the world i cotributig to the basis o

developmet. Tis is why the Developmet Work-

ig Group created by the Korea presidecy could

be madated to make proposals so that a uture

G-20 summit could eectively deal with this huge

ad pressig challege.


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Thnk Tank 20:


21

Te G-20 and Global Development:Which Road to ake?

The ecoomic crisis o 2008 has brought about

a sudde ad uexpected shif i the worlds

summit architecture. Almost overight, the

leadig idustrialized coutries have elevated the

G-20 at the level o ace miisters ad cetral

bak goverors rom its reicaratio as a leaders

orum to the apex o the global system. Tis is ot-

withstadig the act that the G-20s compositio

reects the perceptio o systemic relevace i the

afermath o the 1997-98 Asia acial crisis. As

a cosequece, the G8, which has subtly steered

the global ecoomy sice 1975, has lost its origial

purpose ad ow looks like a subordiated caucus

o a particular coutry groupig. Risig powers

rightly claim that the G-20 caot be cosidered

a cotiuatio o the G8 but rather heralds a ew

era i world politics. I order to symbolically sig-

al their recogitio o the irreversible power shif,

idustrialized coutries would be well advised to

disbad the G8. I order to gai a legitimate place

i the global goverace architecture, the G-20

should assume a leadership role i global public

policy that takes ito accout the specic eeds o

developig coutries while strivig or uiversal

justice. Istead o addig aother layer o well-

meaig developmet programs, the G-20s co-

tributio to global developmet should strategi-

cally ocus o ramework coditios o the global

ecoomy ad support overall policy coherece or

pro-poor growth ad plaetary sustaiability.

Miio etit of te g-20

Curretly it is uclear whether the G-20, as a sel-

selected global steerig committee, will develop a

shared idetity as a guardia o global well-beig

or rather uctio as a political space or old-style

rivalries ad atioal power struggles. Ad it

gERMan

Tomas FuesDirector, Development Policy Perspectives on Global Governance in the Context o theU.N. System, German Development Institute

Peter Wol Head o World Economy and Development Financing, German Development Institute

remais to be see to what extet the remaiig

173 member states o the Uited natios, as well as

o-state actors rom civil society ad the corpo-

rate sector, ca aect the desig, implemetatio

ad outcome o global strategies adopted by the

G-20. As a uprecedeted represetatio o club

goverace, the G-20 eeds to address its ow i-

heret tesios betwee eectiveess, legitimacy

ad accoutability. Its members must also d a

adequate balace o (legitimate) atioal sel-i-

terest ad global resposibilities i they wat to be

see as a legitimate driver i the evolutio o glob-

al goverace. While the G-20 has quickly become

the leadig platorm or dialogue ad policy co-

ordiatio i ecoomic ad acial matters, the

shape ad reach o the ew summit architecture

are still udetermied. neither the power relatios

withi the group or the particular madate it is

meat to ulll i a global perspective have bee

coclusively settled.

Roe of Rii power

Risig powers have emerged as idispesable

players o the global stagea key reaso or their

iclusio i the summit architecture. By joiig

the G-20, they have volutarily accepted the privi-

leges ad obligatios o global leadership. Tis e-

compasses the acceptace o air burde-sharig

i the provisio o global public goods, which is

i accordace with atioal capabilities guided

by the priciple o commo but dieretiated

resposibilities euciated by the Earth Sum-

mit o 1992. It must be recogized, however, that

the ormative oudatios o global goverace

are still heavily skewed toward Wester orms

ad iterests. I order to become a eective

orce, the G-20 eeds to bridge the gaps betwee


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Thnk Tank 20:


22

dieret value systems ad traslate commo

priciples ito operatioal guidelies or the com-

mo good. Te cotributios o risig powers to

policy harmoizatio at this poit are still at a

icipiet stage (Castaeda 2010). Tis ca be ex-

emplied by reerece to iteratioal stadards

i evirometal protectio, huma rights, social

welare ad ati-corruptio, such as the Extrac-tive Idustries rasparecy Iitiative (EII), the

Equator Priciples or the bakig idustry, or the

Global Reportig Iitiative (GRI) o sustaiability

i the corporate sector. Tere is, however, a grow-

ig ivolvemet o Souther powers i some areas

o orm-creatiowitess the ew ISO 26.000

stadard o social resposibility, where Brazil ad

Chia play a leadig role.

Cee to te g-20

Govermets outside o the G-20 ad may voic-

es rom global civil society are deeply suspicious

o the summit architecture (Cooper 2010). Tey

isist o the premier role o the Uited natios

i global deliberatios ad cosesus-buildig.

While the emphasis o the uique legitimacy o

the G-192 (reerrig to total U.n. membership)

carries cosiderable weight, the advocates o ui-

versality caot dey the act that the world orga-

izatio is i a state o deep crisis. Wherever oe

looks, there is o appetite or reorm o ay o the

issues debated i the U.n. system. Regrettably, the

U.n. is kow or adoptig high-yig resolutios

o about every cocer o humakid but utterly

ails regardig their implemetatio ad outcome.

Disillusioed by the 2009 Copehage debacle o

climate egotiatios, may observers udame-

tally doubt that the ustructured, chaotic multilat-

eral process at the U.n. is able to deliver tagible

results i a era o sharpeed allocatioal coicts

over icreasigly scarce resources.

From a ormative ad uctioal perspective, it

would seem desirable to itegrate the G-20, or a

aalogous body, evetually ito the U.n. system. A

commissio o experts recetly recommeded that

the U.n. establish a global ecoomic coordiatio

coucil that could assume the uctio o the G-20

(U.n. 2009). A similar proposal was put orward

by Frech Presidet nicolas Sarkozy ad Germa

Chacellor Agela Merkel. While civil society ac-

tors have supported the idea, govermets so ar

have geerally shied away rom empowerig the

U.n. i ecoomic aairs. Lookig at the stalemate

i multilateralism, it seems likely that icremetal

steps o reorm will ot suce. Some scholars havethereore called or a grad desig i restructur-

ig the world order, equal to the historic eort o

establishig the Uited natios or settig up the

Bretto Woods system i the afermath o World

War II (Maxwell/Messer 2008).

g-20 gob deveomet

Oe good thig that ca be said about past eorts

o the G8 reers to the groups commitmet toward

low-icome coutries, particularly i Arica. Te

G-20 ageda, i cotrast, is cospicuously devoid

o such ethical uderpiigs, at least or the mo-

met. Respodig to growig cocers i the

developig world o possible impacts o the ew

summit architecture o the South, the G-20 has

recetly begu to tur its attetio to the specic

challeges o global developmet ad the plight o

the poor (Fues/Wol 2010).

Te G-20 ca ad should become a relevat actor

or global developmet but ot ollow the road o

the G8, which has become amous or aoucig a

myriad o well-itetioed programs without much

eort o implemetig them. With this disappoit-

ig perormace i mid, the G-20 should resist

calls i that directio rom civil society (Oxam

2010) ad ot get caught up i aspiratioal declara-

tios or operatioal programs. Istead, ad i close

cosultatio with relevat bodies at the Uited na-

tios, the ew summit architecture should coce-

trate o a strategic role i desigig a global rame-

work or pro-poor growth ad sustaiability i de-

velopig coutries. I this approach, the ollowig

three steps are o paramout importace:

1. Te G-20 should assume resposibility

or overall policy coherece i the global

ecoomy that recogizes ad promotes the


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Thnk Tank 20:


23

iterests o low-icome coutries, with a

particular ocus o trade, acial markets,

cross-border ivestmet ad illicit capital

ows.

2. Te G-20 should egotiate a cosesus o a

ocused list o global public goods, icludig

the Milleium Developmet Goals, adshould agree o a related order o priorities.

I this cotext, the G-20 should also elabo-

rate a reorm proposal or a restructurig

o multilateral orgaizatios that allows or

optimal syergies ad a clear delieatio o

madates (Li 2010).

3. Te G-20 should strive or agreemet o a

comprehesive model o burde sharig i

relatio to acig or global public goods,

icludig the itroductio o iovative -

acial istrumets. Tis could be the basis

or brigig about a regime chage i i-

teratioal cooperatio by movig rom o-

cial developmet assistace to global pub-

lic ace (Severio/Ray 2010).

Beyod such a substative ocus, the G-20 should

quickly resolve importat istitutioal ad proce-

dural questios, or example by icludig the U.n.

ad regioal orgaizatios i its deliberatios, es-

tablishig a permaet secretariat, ad providig

istitutioalized dialogue chaels or o-state

actors rom civil society ad the busiess sector.

I the Seoul Summit makes progress o these ope

questios, the G-20 ca become a relevat ad e-

ective actor i the global developmet system.

Bibior

Castaeda, Jorge G. (2010): not Ready or Prime ime: Why

Icludig Emergig Powers at the Helm Would Hurt GlobalGoverace, i: Foreig Aairs, 89: 5.

Cooper, Adrew (2010): Te G-20 as a improvised crisiscommittee ad/or a cotested steerig committee or the

world, i: Iteratioal Aairs, 86: 3, 74175.

Fues, Tomas / Peter Wol (eds.) (2010): G-20 ad global de-velopmet: How ca the ew summit architecture promotepro-poor growth ad sustaiability? Electroic Publicatio,October, Bo: Germa Developmet Istitute.

Li, Johaes F. (2010): Reorm o the Multilateral Develop-met System: Call or a High-Level Commissio, WashigtoDC: Te Brookigs Istitutio.

Maxwell, Simo / Dirk Messer (2008): A ew global order:Bretto Woods II ad Sa Frasisco II, i: Ope Democracy,13. november 2008 (http://www.opedemocracy.et).

Oxam (2010): Te Makig o a Seoul Developmet Cose-

sus: Te essetial developmet ageda or the G-20, Lodo:Oxam.

Severio, Jea-Michel/Olivier Ray (2010): Te Ed o ODA(II): Te Birth o Hypercollective Actio. Workig Paper 218.Washigto, D.C.: Ceter or Global Developmet.

Un (Uited natios) (2009): Report o the Commissio oExperts o the Presidet o the Uited natios Geeral As-sembly o Reorms o the Iteratioal Moetary ad Fia-cial System, September 22, new York: Un.
http://www.opendemocracy.net/http://www.opendemocracy.net/


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IMF Reorms Bode Well or the G-20Seoul Summit, But More angible GainsAre Needed

Rajiv Kumar

Director General, Federation o Indian Chambers o Commerce and Industry; Member,Central Board, State Bank o India; Former Director and Chie Executive, Indian Council orResearch on International Economic Relations; Former member, National Security AdvisoryBoard o India; Former member, elecom Regulatory Authority o India

nda

The historical agreemet to reorm the voice

ad vote, ad subsequetly the goverace

structure, o the IMF at the recet meetig o

the G-20 ace miisters will satisy leaders at the

orthcomig G-20 Seoul Summit. Tere was great

cocerutil this agreemet was aouced

that the divergeces amog members, which had

emerged at the oroto Summit, o almost all the

critical issues acig the G-20 would oly deepe

ad wide at Seoul. Tis would have surely put

ito questio the very uture o the G-20. Te cru-

cial breakthrough o IMF reorms could ot have

come without the eorts o the Korea hosts, who

have spared o eorts to esure the success o the

Seoul Summit. Tey have ot oly worked tire-

lessly sice April with their ocial couterparts

but also with thik taks aroud the world i a

attempt to come up with ew iitiatives ad ideas

ad to geerate a itellectual climate i support

o a eective G-20. Clearly, the Koreas have

accepted the primacy o the G-20 as a global o-

rum or ecoomic ad acial issues; ad let us

hope that Frace, who takes over the presidecy

i november, will cotiue with this tred. Frace

should ot dowplay the importace o the G-20

i avor o the G8. Te two summits should be

idepedet o each other.

Agreemet o the reorm o IMFs quotas ad board

compositio could allow or ope discussio o

achievig balaced global ecoomic growth. Te

key to achievig this is or the cocered coutries

(Chia, Germay, aiwa ad Sigapore, as major

surplus ecoomies; ad the U.S. as a major decit

ecoomy) to accept their respective resposibili-

ties ad implemet measures to correct the imbal-

aces that curretly characterize their ecoomies.

Tis would ot be possible i a bilateral cotext, as

such pressures are either politically uacceptable

or see as a result o diverget aalytical uder-

stadigs o coutry specic situatios, which are

used to justiy uilaterally adopted policies. But

the IMF, with its credibility restored, could make

these policy recommedatios o the basis o ob-

jective ad techically-soud aalysis udertake

as part o the mutual assessmet process or which

it has bee madated by the G-20 leaders. Te

multilateral ramework, i which these recom-

medatios will be made, will avoid the politically

sesitive loss-o-ace or idividual govermets.

It will also reassure them that these recommeda-

tios are ot aimed at beetig ay particular

coutry at the cost o those which are expected to

implemet the required policy measures.

o achieve this positive outcome, however, the

IMF will have to coduct its mutual assessmet

process, or which it was madated at the Pitts-

burgh Summit, o a coutry-specic basis. Te

preset practice, despite the madate to uder-

take coutry-specic reviews, is o udertakig

the assessmet or a category o ecoomies that

icludes a group o coutries. Tis does ot serve

much purpose.1 Policy recommedatios, that are

relevat ad eective, have to be made o the ba-

sis o couty-specic diagosis ad implemeted

by idividual govermets. Te IMF should ow

udertake these coutry-specic reviews ad

1 For example, there are at least 17 major ecoomies that have a curret accout surplus o higher tha 3 percet o the GDP, which represets asigicat macroecoomic imbalace. Te group icludes ecoomies as diverse as Saudi Arabia, Russia, aiwa, Germay ad Chia. Policymeasures caot be recommeded or such a diverse group o coutries.


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Thnk Tank 20:


25

submit its digs ad recommedatios to the

G-20. Member coutries will the d it more

dicult to cotiue with uilateral policies whe

aced with digs that have multilateral support.

Tis could represet sigicat progress as all

G-20 members, without exceptio, will be subject

to these assessmets ad required to implemet

policy measures to redress ay imbalaces. I sucha agreemet or udertakig coutry-specic

mutual assessmet is reached i Seoul, the IMF

could iitiate the review process o the our or ve

ecoomies with the largest imbalaces ad pres-

et its digs ad recommedatios at the Paris

Summit. We ca be sure that such a aouce-

met itsel will see much greater stability ad res-

toratio o codece i global markets.

Also, let us hope that the ext step i IMF re-

ormselectio o its maagig director ad se-

ior maagemet o the basis o a trasparet

merit-based processwill also be implemeted

sooer rather tha later. Tis should o course be

applicable to other multilateral orgaizatios like

the World Bak ad regioal developmet baks,

each o which today has some kid o a opaque

quota system i operatio.

Te itroductio o developmet issues i the

G-20 ageda has bee pushed hard by the Ko-

rea hosts. Tis aces the risk o overburdeig

the orum with additioal ageda items beore it

h

Documents

G-20 Think Tank 20 Essays