G-20 Summit: The Kids Grow Up

The so-called currency war made headlines during the two-day summit of the Group of 20 (G20) industrialized and emergent countries; but the big news is how the nations of the South have gained a stronger voice at the international negotiations table.

This was reflected in the statement released at the conclusion of the Summit in Seoul, which states that the member countries had agreed to take steps to stop the “competitive undervaluation” of their currencies, but they did not set clearer targets, which generally poses great pressure on developing nations. A motion made by the U.S. to set a cap on trade surpluses failed, especially because of China who, with a $27.1 million surplus, rejected it.

The G20 countries pledged to adopt “guidelines composed of a wide range of indicators” to facilitate “timely identification of large imbalances (economic) that require preventive and corrective actions.” Although they emphasized the importance of flexible “market determined exchange rate systems,” the leaders did not specify any mechanism. On the other hand, they stated that the 2011 Summit, with the help of the International Monetary Fund (IMF), will be used to assess temporary imbalances.

U.S. president Barack Obama said that he had told his Chinese counterpart, Hu Jintao, that “emerging economies need to allow for currencies that are market driven” and that Washington would closely monitor the appreciation of the Yuan, which Beijing has allowed in recent months, but with a small and cautious margin. Other developing countries such as Brazil and Thailand have seen their currency, with regard to the dollar, rise in value to maximum levels in fifteen years, which caused their central banks to intervene.

The G20 Summit developed in a particular context: Emergent countries, like China and India, play an increasing role as engines of global economy, while traditional powers like the United States and Japan are affected by slow growth. The meeting of “Seoul showed how new bargaining accompanies the demands of the emerging powers in final agreements,” said the analyst Kenzaby Ikeda, head of the Taiyu Research Institute in Tokyo. Ikeda added, “The role industrialized 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 followed industrialized countries’ G7 meetings, stated that rich countries can no longer play the benevolent role, simply doling out funds to poor countries.