Why G20?
I
Contents
Seoul G20 II
Beyond Seoul G20 III
Global Imbalance & FSN IV
Volatility of Capital Flows
V
u Consensus on the limitations of G7 after 2008 global crisis
u Shrinking share of G7 countries in the world economy
* G7’s GDP share: (’00) 49.1% (’10) 40.1%
* 2010 GDP growth (%, IMF database)
(World) 5.0, (Advanced) 3.0, (Emerging and Developing) 7.1 (US) 2.8, (EURO) 1.8, (Japan) 4.3, (China) 10.3, (India) 9.7, (Korea) 6.2
I. Why G20?
u Cooperation with Emerging Economies such as China, India, Brazil, a nd Korea is indispensable to the recovery and growth of global econo my
1. Changes in global economy
u Man of the Millennium: Genghis Khan ⇒ The World is Flat
Emerging-market economies continue to underpin global recovery
Changes in the economic share of G7 and non-G7 countries among the
G20 members
G20 members and representativeness
u Decrease of OECD members’ share in the global economy
3. Changes at the OECD
l “Rich man's Club”⇒ “House of Best Practices”
u Change in the OECD’s role
l In 2006 and 2007, OECD decided to expand membership and streng then relationship with non-members
- Accession negotiation (5 countries) : Chile, Israel, Slovenia, Estonia, Russia - Enhancing relationship (5 countries and 1 region) : China, India, Indonesia, Brazil,
South Africa, Southeast Asian countries
u In 2010, OECD granted accession of Chile, Estonia, Slovenia, and Isra el (34 members currently)
u Expansion of membership and strengthening of the relationship with non-members
Korea on the
world stage Seoul
Summit
§ Held during transition from a time of crisis to the post-crisis period
§ Held in Asia and by a non-G7 country, both for the first time
II. Seoul G20
§ Follow-up items : All mandates for the Seoul Summit were addressed
Meaningful results for each Agenda Item
§ Korea initiatives : Concrete results were achieved for Korea’s proposals regarding “Development” &
“Global Financial Safety Nets”
Korea acted as a bridge between advanced and emerging countries
1. Overview
§ Seoul Action Plan : cooperative and country-specific policy
§ Global rebalancing: Enhance the Mutual Assessment
Process through ‘Indicative Guidelines
’
2. Agenda
§ Challenges for the Seoul Summit:
- currency conflicts
(flexible exchange rate vs. quantitative easing) - differing views on how to reduce global imbalances (surplus countries vs. deficit countries)
G20 Framework for Strong, Sustainable and Balanced Growth
actions
• under-represented countries (6.2%)
• two chairs shift at the Executive Board (out of 24, Europe: 9→7) (advanced Europe → emerging market and developing countries)
• moving towards an all-elected Board
IMF Reform
More legitimate, credible and effective IMF
Promoting global financial stability and growth
• New bank capital and liquidity standards: Basel Ⅲ (BCBS)
* common equity ratio : 2% → 7%
• SIFIs (Too big too fail)
• macro-prudential policy frameworks to deal with systemic risks
Financial Regulatory Reform
More resilient financial system Better Serving the needs of our
economies
• FCL and establishing the PCL (Precautionary Credit Line)
• tackling the ‘first mover’s problem’ and reducing stigma
• exploring structured approach to cope with systemic shocks
• improving collaboration between RFAs and the IMF
Global Financial Safety Nets
Strengthened GFSN Helping countries cope with financial volatility
Development
§ Narrowing the development gap and sharing global growth
• maximizing developing countries’ growth potential ☞ “Africa Consensus”
• focusing on concrete measures to achieve tangible results
Prosperity for developing countries
Generating new poles of growth and contributing to global rebalancing
Energy Trade Anti-corruption
§ Phasing out inefficient fossil fuel subsidies
§ Stabilizing fossil fuel price volatility
§ Protecting the marine environment
§ Reaffirming the
extension of standstill commitments until the end of 2013
§ Recognizing the need to complete the
DDA
§ Endorsing the G20 Anti-Corruption Action Plan
§ Building an effective global anti-corruption regime
3. Modality
• Participants: Global business leaders (120) / G20 Leaders (12)
• Theme: The Role of Business for Sustainable and Balanced Growth
• Preparation: Debates and deliberations in 12 Working groups over 4 months
• Revitalizing trade and foreign direct investment
• Enhancing financial stability and supporting economic activity
• Harnessing green growth
• Delivering on the promise of corporate social responsibility
Business Summit
• Ambassador for G20 Outreach
• More than 40 Times
Outreach to non- G20 countries
1. Seoul Legacy
u Outreach to the Private Sector
u Outreach to non- G20 countries Business Summit
NGOs, Think Tanks
III. Beyond Seoul G20
A. Agenda B. Modality
At least 2 out of 5 invitees from Africa
2. France’s Agenda
u International Monetary System
u Establishment of a Permanent Secretariat
u Development agenda & HLF-4: The Fourth High Level Forum on A id Effectiveness
3. Other Issues
Busan HLF-4 : November 2011
How to accommodate the recent discussion of the development agenda at the G20 into the HLF-4
u How to deal with capital flows u Commodity Price Stability u Global Governance System
u Others: nuclear safety, etc.
1. Past episodes of the global imbalances
Three big events of global imbalances – 1960s, 1980s, present
u Rebalancing aggregate demands across countries
<Historical Pattern of Global imbalances (U.S. C/A of GDP, %)>
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
current deficit/GDP
Bretton-Woods System Plaza Accord Present
IV. Global Imbalance & FSN
2. Global imbalances: Cause & Blame Game
External Factors
Global Imbalances
Capital Inflow to U.S
Loose
Monetary Policy
Excess Liquidity
Flawed Regulation & Supervision
Rapid
Internal Factors
* The Economist (Jan. ‘09) * China Daily (Jan. ‘10)
Saving glut Loose monetary policy
Size
U.S China
∆2.7% ∆4.9%
2.2%
∆5.3%
3.8% 10.1%
96-00 01-05 06-08
Oil-producing
countries 5.4% 12.1% 14.2%
C/A deficit C/A surplus
2. Global imbalances: Sequel of the blame game
Appreciation
Surplus Countries Deficit Countries
FX adjustment Depreciation
More consumption & more
investment More saving
Takes a long time (behavior change, social safety net, ageing society, etc.)
Problem 1
Domestic policy adj ustment
Hidden incentives to accumulate reserves as a war chest
Problem 2
3. Foreign reserves as “Self-insurance”
• Korea’s case:
Even ample reserves can not address s ystem failure.
* Korea: 264bil(08.3) [ 200bil(08.12)
Lehman’s bankrupcy(’08.9)
* IMF, “Coping with surges in capital inflows”
700 900 1,100 1,300 1,500 1,700
08.1 4 7 10 09.1 4 7 10
1,700 1,900 2,100 2,300 2,500 2,700 2,900
(\/$) (100mil$)
FX reserve
FX rate
Lehman’s bankrupcy(’08.9)
Kor-U.S currency swap(’08.10.30)
• System failure:
lack of a global safety net
4. Global safety net
Swap Agreements
Regional Monetary Cooperation (e.g. CMIM)
Greater Role of the IMF
• Eliminate “Stigma Effect”, Adopt Precautionary Facility
1
2 3
Global Safety net
Sufficient: multiple insurance
Precautionary: eligibility and amount predetermined, immediately accessible
Basic elements
Other tools
• Brain storming in G20
4
24
(Unit : US$ bn)
Bank FX Liabilities
Equity
High Volatility of Foreign Capital Flows Particularly in ST Overseas Borrowings
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
equities bonds financial derivatives
Short Term overseas (Standard deviation of
monthly BOP data between 1998-2010 ) (Unit : US$ bn)
n During 2006 to June 2008, $147.3 billion of foreign capital flowed into Korea, while ST overseas borro wings grew by $89.7 billion during the same period.
n In the wake of the global financial crisis in 2008, Korea experienced sudden outflows of ST overseas b orrowings.
* Foreign capital worth $66.7 billion flowed out during Sept-‐Dec 2008—73% was related to ST overseas borrowings
V. Volatility of Capital Flows
n The excessive ST borrowings in the banking sector led to volatile capital flows.
-‐ ST borrowings of domestic banks increased by $34.1 billion between 2006 to June 2008 and decreased by $21.3 billion dur ing Oct-‐Dec 2008.
-‐ ST borrowings of foreign bank branches increased by $56.4 billion between 2006 to June 2008 and fell by $25.7 billion du ring Oct-‐Dec 2008.
