Seoul, Nov 8 (DPA) Arguably the biggest challenge facing the Group of 20 summit in Seoul next week will be putting an end to a currency war that is placing the already fragile and uneven global recovery at risk.
For this to happen, world leaders will need to put cooperation above national interests.
But the omens are not good.
‘If each country insists on its own interest during the recovery phase, it will bring about trade protectionism and will cause the world economy very big problems,’ South Korean President Lee Myung Bak warned ahead of the gathering he is hosting Nov 11-12.
President Lee says he expects ‘good results’ from the summit. But he faces a daunting task.
In a bid to revive their ailing economies in the aftermath of the global financial meltdown of 2008, many of the world’s major players have allowed their currencies to depreciate in a bid to make exports cheaper and imports more expensive.
Competitive devaluation warfare has pitted the US dollar against the euro, developing countries against the developed world, and just about everyone against the yuan, which, by being virtually fixed to a depreciating dollar, has allowed China to maintain a huge trade surplus.
The latest major move came Wednesday, when the US Federal Reserve announced a new round of ‘quantitative easing’ that will see the central bank buy up to $600 billion of government debt to boost economic activity amid persistently low economic growth and high unemployment rates.
The announcement immediately took the dollar’s trade-weighted index down to a new 2010 low, with both the euro and the pound sterling rising to nine-month highs against the US currency.
Faced with a rising real, outgoing Brazilian President Luiz Inacio Lula da Silva responded by saying he would travel to Seoul ready to take ‘all the necessary measures to not allow our currency to become overvalued’ and to ‘fight for Brazil’s interests’.
While a strong euro may not pose much of a problem for successful European exporters such as Germany, Philippe de Buck of BusinessEurope, an organization representing millions of European firms, has complained about excessive currency volatility and currency manipulation by the likes of the US and Japan.
In a joint letter published ahead of the Seoul summit, European Commission President Barroso and European Council President Van Rompuy urged the G20 to ‘give a clear political commitment to cooperative and lasting solutions to the current tensions in currency markets, to allow exchange rates to be set in line with market fundamentals and to refrain from competitive devaluation of currencies’.
Adding to the difficulties is US president, Barack Obama, who will be expected to be in a combative mood in Seoul after his Democratic Party suffered a bruising in midterm elections.
Anticipating a row in Seoul, Chinese experts said the country’s diplomats would vigorously defend themselves from charges that their government has been manipulating the renminbi to favour Chinese exports.
Comprising countries that account for about 85 percent of the global economy, the G20 has cast itself as the key forum for international economic cooperation since the 2008 meltdown.
But if it is to live up to its aspirations, the Seoul meeting will need to reach difficult compromises on how to re-shape international finance.
Leaders will be asked to provide political approval to new rules on the quantity and quality of bank capital, liquidity and leverage, and will discuss a South Korean proposal to create a permanent safety net to help states in financial trouble.
They will also be expected to discuss controversial ideas close to the heart of French President Nicolas Sarkozy to introduce a global levy on international financial transactions.
Much of the discussions will be devoted to endorsing an agreement reached by G20 finance ministers to reform the International Monetary Fund in a way that gives more decision-making weight to emerging powers such as China and India, to the detriment of Europe.
But the summit is unlikely to make much progress on several important issues, including the Doha Development Round on reducing trade barriers, climate change financing and food security, argues John Kirton of the G20 Research Group, a network of international
experts who follow the work of the G20 leaders.
The G20 will be accompanied by the traditional flurry of bilateral meetings and will be taking place amid heavy security, with some 50,000 police officers mobilised to protect delegates against terrorist threats and clamp down on angry protesters.
