Global IssuesG-20: Summit Shows Power Shift for Developing Economies
Currency and trade tensions may have grabbed the headlines from the two-day summit of the Group of 20 advanced and developed economies, but the bigger story is how the tables have turned and given developing countries a much stronger voice at the international negotiating table.
This power shift is reflected in the communiqué issued at the G-20 summit that ended on Nov. 12, showing that members agreed to set indicative agendas and steps to prevent competitive and destructive currency devaluations rather than fixed targets, which typically put a lot of pressure on developing countries.
A call by the United States to set a cap on trade surpluses, which was unpopular particularly with China that has a surplus of 27.1 billion U.S. dollars, was not adopted by the G-20.
Instead, G-20 leaders said in a communique after their Nov. 11-12 summit that they would come up with 'indicative guidelines composed of a range of indicators' that would facilitate 'timely identification of large (economic) imbalances that require preventive and corrective actions to be taken'.
Although they stressed the importance of 'market- determined exchange-rate systems' and exchange-rate flexibility that reflects 'underlying economic fundamentals', the leaders did not specify these mechanisms. They said that the 2011 G-20 summit would, with the help of the International Monetary Fund, review global economic imbalances.
U.S. President Barack Obama said he told China’s President Hu Jintao that 'emerging economies need to allow for currencies that are market-driven' and that Washington would be watching the appreciation of the yuan, which Beijing officials allowed by a small, cautious margin in the last few months.
Other developing countries, ranging from Brazil to Thailand, have seen their currencies appreciate to their highest levels in 15 years, a pace that has prompted several central banks to put in various forms of capital control. The dynamics at this year’s G-20 summit are shaped by a backdrop where fast-growing developing countries, such as China and India, are playing the role of economic locomotives while the traditional powers, including the United States and Japan, are hampered by slow growth.
'Seoul showed how new bargaining accompanies the demands of the emerging powers in final agreements,' said Prof Kenzaburo Ikeda, head of the Taijyu Research Institute here. 'The role industrialised economies can play now is to take long-term steps and act responsibly, such as by stimulating their own economies by investment further in developing countries.'
Ikeda, who has also followed G-7 meetings as an official, says the result today is that rich countries can no longer play the benevolent role — doling out funds to ease foreign debt, for example — that they used to have toward the poorer developing world. Indeed, at the G-20 summit, South Korean President Lee Myung-bak pushed the role of his country as a bridge between developing and developed countries because it has first-hand experience in economic development and knows the challenges of developing countries.
'But there is (still) a strong feeling among emerging economies that they still need help leading to a situation where the demands on the negotiating table in Seoul are mismatched,' explained economist Kensuke Kubo, an expert on the Indian economy who is with the Institute of Developing Economies.
Despite their high growth rates, which have been drawing speculative capital from developed countries and causing the appreciation of their currencies, developing nations grapple with a mix of domestic and economic problems.
They face issues such as lack of capital for new infrastructure in India, growing labour unrest in China and the widening gap between the rich and poor populations within countries.
But this is also why they are cautious about the G-20 fixing rigid controls that could slow down the growth of China, whose economic activity they need in order to stimulate global economic activity despite criticism led by the United States of its protection of its currency.
'Naturally, emerging nations worry that targets (set by G-20) could lead to a lowering of domestic growth,' Kubo points out. 'This is something that not only developing countries but even the rich countries will want to avoid.'
China’s economic growth of more than nine percent annually for more than a decade has made it the world’s second largest economy, replacing Japan, whose growth has been at less than 3 percent.
The Indian economy has been growing by up to 9 percent. Japan and India inked an Economic Partnership Agreement last week in Tokyo.
In contrast, the United States, while still the largest economy, is saddled with trade and current account deficits leading to unemployment as high as 8 percent and growth rates as low as 2 percent annually.
Apart from currency tensions and fear of devaluation across currencies in competition for export markets, G-20 members also tried to address the issue of freer trade amid their competing interests.
In fact, the G-20 summit ended against the backdrop of a failed free trade agreement between the United States and South Korea, one that was expected to boost the U.S. economy by stimulating job creation.
This free trade accord, pending through long years of discussion, continues to flounder over domestic Korean objections to the opening up of its market to U.S. beef imports by lowering tariffs by up to 40 percent in 15 years.
Japan’s support for the much-touted Trans-Pacific- Partnership (TPP) proposal this week is also facing domestic blockage. The TPP has pitched local farmers, who worry about a deluge of cheaper agricultural products developing countries, against businesses that want to see Japan’s local market opened up.
Formed in 1999 in the wake of the financial crises to give developing economies a greater voice in global economic governance, the G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, Britain, the United States and the European Union. (ENDS/IPS/AP/WD/IF/DV/IP/SK/JS/10)
© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service