On 1 January, South Korea takes over the Group of Twenty (G-20) chairmanship from the UK. Korea is not the first emerging market to chair the G-20, but it is the first to do so since the global financial crisis. And it is the first to do so since the G-20 emerged as the steering committee for the world economy.

G-20 chairs can have considerable influence. They coordinate the group’s work. They organize its meetings. Like most committee chairs, they have significant agenda-setting power.

Illustration: Jayachandran / Mint

During the UK’s year chairing the G-20, Gordon Brown had a clear agenda. He saw the G-20 as a vehicle for building consensus on coordinated monetary and fiscal stimulus and financial regulation. He also viewed it as a forum to address the problems created for the poorest countries by the global financial crisis. And he used the chairmanship to elicit commitments to resist protectionism.

In retrospect, Brown’s agenda-setting problem was easy. Given the nature and gravity of the crisis, it was brutally obvious what the priorities for the G-20 should be.

The priorities for President Lee Myung-bak are less obvious. Some will say that he should get G-20 countries to coordinate an orderly exit from their expansionary monetary and fiscal policies. But growth in the advanced economies will almost certainly remain weak in 2010. With the US, Europe and Japan still suffering post-crisis hangovers, this issue can be safely left to the country that chairs the G-20 in 2011.

Others will say that a priority should be agreement on slowing climate change. But this is best addressed in summits such as the one in Copenhagen, in the presence of all world leaders, not in the cozy confines of the G-20. Small countries—think of Mauritius—are often the ones affected most dramatically by global warming. They are excluded from the G-20, which is supposed to be made up of the 20 largest economies as a matter of design.

Instead, Lee should give priority to four issues, starting with financial reform, a problem that Brown targeted but did not solve. Progress here has been inadequate, despite much talk. In particular, there has been little action on issues such as creating a cross-border resolution authority to deal with the failure of a large financial group, something that can only be done at the international level.

The window of opportunity for financial reform is now closing, and business-as-usual will only result in more crises and more bailouts. South Korea must, therefore, do everything it can to reinvigorate the debate.

The second priority should be more progress on global rebalancing. Asian countries need to do even more to stimulate spending, and they need to move together. China is incapable of solving this problem on its own, because its economy is still only one-third the size of America’s. But if Asian countries move together, China will be more willing to let its exchange rate against the dollar become unstuck. The second factor contributing to the crisis could then be addressed once and for all.

Third, the G-20 must address its own legitimacy deficit. After all, no one anointed these 20 countries as the designated representatives of the world. Who speaks for the other 173 internationally recognized countries? Why should there be so many European G-20 members—other than the fact that they were incumbent members of the earlier “G’s"—and not more African members?

Here, South Korea can propose an obvious solution. Align G-20 membership with the composition of the International Monetary Fund’s executive board. Twenty-four countries sit there. Big ones have their own seats, while smaller ones represent groups of countries, known as “constituencies". In many cases, the constituencies rotate the chair among their members. Everyone is represented.

Finally, the G-20 needs an emerging-markets caucus. The US and the Europeans are in constant contact, doing their best to agree on positions and table common proposals. Emerging markets, failing to do the same, have punched below their weight. They have allowed the advanced countries to drive the G-20 process.

This is the most delicate issue of all for South Korea. As chair, it needs to act as an “honest broker". It can’t be seen as giving emerging markets special encouragement. And, given its location, South Korea would be torn between encouraging an emerging-market caucus and encouraging an Asian caucus—for Asia, too, needs to organize itself better in order to represent its interests in the G-20.

Thus, the initiative here might best come from another G-20 country—maybe Brazil, South Africa, or even Russia. But South Korea could usefully drop a hint.

©2010 / Project Syndicate

Barry Eichengreen is professor of economics and political science at the University of California, Berkeley. Comments are welcome at theirview@livemint.com