Seoul: World leaders gather in Seoul on Thursday and Friday for a Group of 20 summit aimed at safeguarding the global economic recovery and defusing trade and currency tensions.
This is the fifth meeting of the G-20 leaders, representing advanced and emerging economies that account for about 85% of global output, since the global financial crisis erupted in 2008.
Here are the key issues that are expected to be discussed:
Global Imbalances: Ironing out rifts between export-rich countries and debt-laden consumer nations has become the G-20’s cornerstone. Leaders have already agreed on a “framework” for balanced growth, and have submitted medium-term economic plans for International Monetary Fund review to ensure they do not clash.
Extending or deepening this framework might be one relatively easy spot to reach consensus in what look to be fraught discussions. The US Federal Reserve’s decision last week to buy a further $600 billion in government bonds has angered many G-20 nations who say the central bank ignoring the global repercussions of its actions.
Retired soldiers chant slogans as they hold flags of the participating countries in the upcoming G-20 summit during a rally supporting the summit in Seoul on Wednesday. Jo Yong-Hak / Reuters photo
Imbalances narrowed during the financial crisis when global trade fell sharply, but they have begun to widen again as the recovery takes hold. The trade gap between the United States and China hit an all-time high in August.
Currencies: Foreign exchange rates are central to the imbalances debate. The United States and others have cajoled China to allow its yuan currency to rise faster and accuse Beijing of keeping it undervalued to gain a trade advantage. But Washington will have a tougher time making that case when many of its allies view the Fed’s easy money as a means to weaken the dollar.
At previous G20 summits, leaders have haggled over whether to include a line in the closing statement singling out China for keeping its currency undervalued, yet so far that has not happened.
G20 finance ministers agreed last month to avoid competitive currency devaluations, and leaders may endorse that commitment this week.
Financial Regulation: World leaders will sign off on a “Basel III” agreement to raise the quality and quantity of bank capital, the centrepiece of their reforms following the financial crisis. There will also be endorsements of the Financial Stability Board’s proposals on tightening supervision of the over-the-counter derivatives market and reducing reliance on credit rating agencies.
However, significant progress on the rest of their regulation agenda is unlikely. While the G-20 will endorse a series of broad recommendations by the Financial Stability Board to regulate banks judged “too big to fail”, disagreement over whether such institutions should be subject to capital surcharges mean the agreement is likely to be light on specific measures.
Trade: Slow-growing advanced economies all want to export their way to economic health, which is the root of the tensions over currencies and imbalances. Leaders will probably agree to broad pledges to avoid protectionism and work toward concluding the long-stalled Doha round of trade talks.
For hosts South Korea, the pressing issue is securing a new US free trade agreement. Differences remain over auto standards. For President Barack Obama, a trade agreement could be one way to reach out to newly empowered Republicans in Congress.
Diplomacy: Although economic issues will dominate the official agenda, world leaders have no shortage of diplomatic issues that could be discussed this week.
The summit follows several weeks of tension between Japan and China, Asia’s biggest economies, over a chain of disputed islands that are close to vast potential oil and gas reserves in the East China Sea. Relations between Tokyo and Moscow have also chilled after Russian President Dmitry Medvedev visited part of an island chain north of Japan claimed by both countries.
Concern about Chinese assertiveness has been exacerbated in recent weeks by speculation that China has been using its monopoly over rare earth minerals needed for high-tech products as a lever in diplomatic disputes.
Other diplomatic issues that could come up include the frozen talks with North Korea to end its nuclear programme and efforts by world powers to restrain Iran’s nuclear activity.