G20; An opportunity taken by Korea, but lost by our 'leaders'.

The recent G20 summit in Seoul, South Korea was a chance for Korea to showcase to the world that it is a global financial power, to emerge from the status of developing to developed nation.

The staging of the G20 summit in Korea, was a not so subtle message to the world of how economic power has shifted to the East. If, forty years or so ago, one had to point on the globe to the centre of economic power the pin would sit in the Atlantic, off the East coast of the USA but with a strong pull from the old European nations. Today the pin is in the Pacific Ocean gradually and seemingly execrably moving towards China and the Asian Pacific countries.

The transformation is remarkable and Korea is an exemplar of such; from being one of the worlds twenty poorest countries in 1950 to today one of the worlds twenty richest is a growth not seen anywhere in the older western economies.

Whilst the G20, comprising of the world's 19 leading national economies plus the European Union,  was formed and first met in 1999, it had little influence. The G20 group was overshadowed by the G8; - Canada, France, Germany, Italy, Japan, Russia, the UK and the US.

The near global financial melt-down in 2008 changed the status of the G20, a larger group of nations was required to act to prevent the crises from collapsing the capitalist system. The world leaders met in London, and faced with imminent danger agreed to act.

The economies of most countries survived the crises, and today’s issues, of huge trade imbalances and ‘currency wars’ seem less urgent and perhaps even harder to agree  reform, consequently co-operation in Korea 2010 was always going to be difficult to achieve, and predictably the ‘leaders’ decided instead to issue bland and meaningless communique   of good intent.

So, did the summit achieve anything?

For Korea, the answer would seem to be a resounding yes, for the developing world maybe, for the stability of the world economy an equally resounding no.

The summit put Korea centre of the world stage, whilst the Olympics, World Cup and F1 were important, the G20 is serious and if, as I believe, pride and prestige is important to a populace then hosting the G20 would have enhanced Koreans belief in their new found position in the world.     

The world’s serious media descended upon Seoul, and their reports sent around the globe. Overwhelmingly the newscasters were upbeat about the country; describing a technologically advanced, friendly dynamic country that embraces the notions of hard-work, enterprise and education. (In fact I only read one article critical of the Korea’s record on animal rights, in particular in relation to farming bears for gal bile). The message to the world was come and visit, (Je ju island was much covered) and come for business.

The organisers will be relieved that the tight security worked, no pictures of protesting anarchist, and much more importantly no acts of terror or even a little shoe throwing at the leaders.

Life can often be about perceptions, and the summit would have helped greatly in promoting some very positive perception of the country.

President Myung Bak Lee, had stated that 2010 would be Korea’s year of Africa, and in addition to increasing aid to the region has said Korea wishes to share with Africa its knowledge of development.

The Korean aid budget to Africa has indeed increased to approximately $60m, however, it pales still in comparison to other countries efforts. (For example, Britain overseas Aid budget is approximately $11 Billion, and is pledged not to decrease despite the UK’s economic woes). Direct comparisons are a little unfair, but the aid to Africa’s path is well worn by many countries before South Korea’s efforts, and unless they can unlock the cycles of dependency corruption, poverty, civil-war and the other multitude of issues, I remain sceptical.

Invitations from President Lee, to the President of Malawi, Bingu wa Mutharika, who currently chairs the African Union, and the Ethiopian President Meles Zenawi, who chairs the New Partnership for Africa's Development (NEPAD), were gestures designed to illustrate that African aid and development remains on the table.

None the less, all at the summit will be conscious that China is investing very heavily into Africa in search of natural resources to feed its ravenous manufacturing sector. Korea too will no doubt be considering a presence in Africa, but will have to decide if along with the US and Europe to press African leaders to follow the model of democracy in return for aid and trade, or to adopt the Chinese model of non-interference in the political affairs of other nations. Such considerations are perhaps a little premature, but in time will need consideration.

So Africa aid was discussed, but concrete trade proposals are as far away as ever, Korea despite its Chairmanship of the G20 is not really in a position yet to lead a change of strategy that would involve restructuring of numerous trade agreements long entrenched in national interest. Nevertheless, if Korea can help incubate a developing economy in Africa, the summit may be viewed in years to come as an important milestone.

The over arching issue prior to the summit was the huge trade imbalances, and the resulting ‘currency wars’. It seemed at times to be a summit of two; of President Obama and  President Hu, the other nations bystanders watching the crash of ideas and ideologies.

The issues are clear for all to see, it is just that the solution will be painful, and no leader democratically elected or not wants to admit that the solution involves a lot of pain.

It seems to me that America needs its currency to be weak, for a weaker dollar will help the economy and potentially reverse the slow decline of the economic fortune. However, the effects on the rest of the world of a weak dollar, is economic pain. The question not answered is where is the increase in demand going to come from? Asia has produced, and the West, -the US, Britain and Spain, have borrowed and spent, but the cycle is corrosive, and the pain will not be limited unless the Asian nations can find new markets.

The US economy is close to crises with unemployment the highest since before the Second World War, the actions of active intervention to suppress currency values in the market by China, Japan, Korea and others will increase America’s difficulty in emerging from the economic woes.

The motivations are clear, Japan wants to avoid deflation and China needs to keep the factories employing the increasingly aspirational population.  The issue for both countries is they need the American market, and in comparison the home market, particularly in China is still small.

The American leadership will well understand the problems faced by others, but they cannot allow the situation to continue, and whilst the world i not quite at the point of protectionist policies we are moving ever closer in that direction.

The so-called quantitative easing, QE2, was a dramatic move by America to fight back, it will flood the economies of those on the other side of the currency war, and will in effect create a currency revaluation. Such action is brutal, but is designed to protect America from what it views as ‘unfair’ actions, in particular the action of China in suppressing the value of the Yuan.

I was struck by what the Nobel prize winning economist, Paul Krugman said, “people are looking for innocuous ways to deal with this problem, and there aren’t any”. A little knowledge of economic history would suggest that these imbalances are bad for all, but worse for the countries in surplus.

We are at a dangerous point in the world and the ‘leaders’ at the G20 seemingly missed the opportunity, but perhaps another strategy is beginning to emerge. Might the Chinese and others be seeking to introduce an alternative to the dollar? In the 1940s Keynes suggested the concept of the “Bancor”, which is a commodity currency priced off a basket of metals. If such were to develop, the US position as the currency hegemon it has enjoyed since the Gold Standard was abandoned will be lost.

If the leaders are playing poker, the stakes are huge, commercial wars would cause huge harm to the surplus countries, but perhaps the game is for the power balance to seismically shift by creating a climate where even America’s staunchest friends support a new currency system. It is said often that the Chinese are happiest playing the long game; Obama on the other hand has an election to win in a couple of years.

November 17, 2010  |  Article Posted By: afterabc admin , London
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1 Comment

Administrator 1 | November 18, 2010 7:48 AM | Reply

testing by neeru

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