Korea's G20 Strategy

The G20 Summit, which emerged as a new global governance body following the global economic crisis, is nearing its 2010 Seoul Summit. The G20 Summit held in Canada in June was transitional, deferring agreements on key agenda items such as the International Monetary Fund (IMF) quota adjustment and bank capital and liquidity regulations to the Seoul Summit in November. In response, the East Asia Institute (EAI) hosted the 11th InfraVision Forum on July 8, 2010, inviting Lee Chang-yong, head of the Planning and Coordination Division of the G20 Summit Preparatory Committee, to analyze the main issues of the G20 Seoul Summit and explore Korea's G20 strategy under the theme of "Korea's G20 Strategy." Director Lee Chang-yong explained Korea's G20 strategy focusing on three areas: "Existing Tasks, Seoul Initiative, and Informal Issues," followed by a Q&A session with the discussants. The following is a summary of the presentation and key discussions.

Presentation Content

Existing Tasks: Cooperation Framework for Balanced Growth, Reform of International Financial Institutions, Financial Regulation

Examining Korea's G20 strategy by key issues, the first set of tasks for Korea, extending from previous meetings, involves three areas. First is the discussion of a framework to seek policy coordination directions for the medium- and long-term growth of the global economy. The framework discussion aims primarily to coordinate policies among countries to enhance the growth potential of the post-crisis global economy as the crisis subsides. However, behind this, the UK and the US have raised structural issues in response to criticisms that the financial markets of Anglo-American capitalism were the root cause of the crisis, which emerged after the second London Summit. At the third Pittsburgh Summit, the US proposed the "framework for Strong, Sustainable, and Balanced Growth," arguing that the global trade imbalance must be resolved for the global economy to achieve strong, sustainable growth in the medium and long term. This specifically raises the issue of the need for adjustments to China's export-oriented model, including the argument that China must realistically revalue the yuan as the global economy can no longer sustain growth dependent on the US fiscal deficit. At the Toronto meeting in June, discussions were held by grouping advanced deficit countries and emerging surplus countries, but it was decided at the Seoul Summit in November to focus discussions on policy alternatives at the country level. This implies that sharp confrontations between national positions are inevitable, and thus the framework discussion will be a key criterion for evaluating the outcomes of the Seoul Summit in a high-risk, high-return manner.

Second, the reform of International Financial Institutions (IFIs). This discussion began due to criticisms that the IMF and the World Bank were inadequate in their response to the recent economic crisis, necessitating reform. Previous discussions have included securing additional financial resources for IFIs, improving their mandates and functions, and reforming the overly European-centric structure. Among these, the reform of the World Bank has been largely concluded through previous meetings, leaving the reform of the IMF as Korea's remaining task. The core issue is the transfer of 5 percent of voting rights from over-represented European countries to under-represented emerging countries, which is expected to be a challenging task. This is because, first, unlike the World Bank, the IMF has a significant impact on domestic politics, leading to sharp conflicts of interest among nations. Second, while the "framework for balanced growth" discussion mentioned earlier allows for broad evaluation, the success of IMF reform is clearly dichotomous, placing a greater burden on the host country. Third, this issue requires mediating competition among major powers, making it difficult for a middle power like Korea to engage in shuttle diplomacy between them.

Third, financial regulation. A total of 47 detailed tasks and a timetable have already been established through previous meetings, and thus each detailed task must be completed before its deadline according to the timetable. This year, three tasks must be completed. First, the issue of the bank levy, which had a deadline of June this year, concerns determining the extent to which the financial sector should bear the costs of government intervention for restoring and resolving the financial system through a bank tax. This was provisionally concluded at the Toronto Summit with agreement on the general principles, leaving specific details to the discretion of each country. Therefore, Korea has two remaining tasks, which are among the more difficult issues to reach agreement on within the 47 tasks. First, the regulation of large financial institutions or Systemically Important Financial Institutions (SIFIs) involves intense debate due to the differing systems of financial institutions in the UK, the US, and Europe. Second, the issue of strengthening capital adequacy or financial soundness is met with resistance from European countries, who are reserved about the Anglo-American argument for strengthening capital primarily through common equity. These tasks, like the reform of international financial institutions, require reaching agreements with specific figures, making their success or failure clearly visible.

Seoul Initiative: Development, Building a Global Financial Safety Net

In addition to faithfully fulfilling the assigned tasks, Korea needs to represent developing countries and non-G20 countries and ensure the long-term sustainability of the G20. In this context, Korea intends to officially raise two additional discussion points at the Seoul Summit. First, the establishment of a Global Financial Safety Net. This is a measure to prevent difficulties arising from exchange rate instability due to liquidity issues, aiming to establish a mechanism for developing countries to secure liquidity in times of crisis. Second, the development issue. Having transitioned from a 'recipient of aid' to a 'provider of aid,' Korea possesses a "brand name" in development and is therefore in a position to propose agenda items. However, some G20 member countries opposed expanding the agenda to development issues before the crisis was overcome. Many countries argued that development is an aid issue that should be addressed by the G8, and the UN, in particular, believes that development issues should be addressed within the framework of the UN Millennium Development Goals (MDGs). In response, Korea argues that the G20 should complement and differentiate itself from the approaches of the UN and the G8 by linking development and economic growth.

Informal Issues: Business Summit, Ensuring G20 Sustainability

In addition to the aforementioned discussions, Korea is informally raising two issues. First, the hosting of a Business Summit where about 100 CEOs of major global corporations will discuss trade, investment, finance, green growth, and corporate social responsibility. This initiative is being pursued with the strong will of President Lee Myung-bak, stemming from the premise that economic recovery should be private-sector led. If a platform for discussion among the world's top 100 companies is established, a private-sector-led channel for economic recovery can be created and institutionalized. Furthermore, it offers the advantage of providing practical assistance to Korean companies through communication with major global corporations.

Second, the issue of ensuring G20 sustainability. Discussions regarding the composition of the G20 are still ongoing. From Korea's perspective, it is necessary to devise measures to ensure the sustainability of the G20, as it aims to establish itself as a "premier forum" in the long term. In this regard, the Brookings Institution and the Korea Development Institute (KDI) held a conference in Washington in April and plan to hold a second conference in Seoul in September. These research institutions are conducting research on the history, limitations, relationship with other international organizations, scope of agenda, geopolitical dynamics, table setting, effective communication directions, and implementation plans of the G20. This research will be particularly important for Korea, which has a relatively weak record on major international issues compared to other countries.

Q&A

Developing the Seoul Initiative

Q: What are the specific ways to develop the Seoul Initiative, which Korea is newly proposing in addition to the basic tasks for the Seoul Summit?

A: Among the G20 member states, South Korea is making efforts to garner support for the Seoul Initiative, which it has officially proposed. While all member states respect the position of the presiding nation, South Korea, numerous challenges remain for the Seoul Initiative to succeed. For South Korea, as the first non-G8 country to assume the presidency, it is imperative to demonstrate intellectual capacity beyond that of a mere broker executing assigned tasks. This includes showcasing its ability to develop policy, coordinate efforts, and propose new ideas. Furthermore, there is a need to meet the demands and expectations of countries not part of the G20. Therefore, despite the difficulties, it is necessary for the Seoul Initiative to achieve some level of success.

To this end, South Korea must pursue both its own driving force and solidarity with other nations to discuss development and the establishment of a global financial safety net. It is particularly important to leverage the role of the presiding nation in agenda coordination to mediate conflicts in positions among countries. Both the global financial safety net and development issues involve complex and divergent national stances on specific sub-issues. This can also be seen as a characteristic of the G20 system, where solidarity structures dynamically shift depending on the topic. Consequently, within the G20 framework, not only the G8 countries but also the remaining 11 nations play a significant role, and above all, the presiding nation possesses the advantage of high leverage. South Korea needs to effectively utilize these aspects.

Ensuring G20 Sustainability

Q: What is considered most important for the sustainability of the G20 framework?

A: Discussions on the composition of the G20 member states are still ongoing behind the scenes. The fact that issues regarding the G20's composition continue to arise implies that the G20 framework, even if not abolished, is likely to change in the future. In this context, it is fortunate that Korea assumed the chairmanship early on.

For the G20 to be sustainable, leaders of each country must assess the G20 framework as effective. Currently, the economic crisis is ongoing, and the G20 framework has only recently been established, so it is operating relatively well. However, if the usefulness of the G20 framework is not continuously demonstrated after the economic crisis, its status may be downgraded. Therefore, it is essential to decide on concrete and certain outcomes, not abstract content, and to continuously monitor their implementation and strive for their proper execution.

In relation to G20 sustainability, efforts to represent non-G20 countries are also important. The Korean government recognizes this and is making significant efforts, but it is indeed a difficult task. One of the desires of non-G20 countries is to be included in the G20 framework, but the issue of increasing membership is not something Korea can decide alone.

The establishment of a secretariat for the institutionalization of the G20 is also under discussion, and Korea supports this, but there are still more opposing views. Therefore, the atmosphere is leaning towards postponing the discussion on establishing a secretariat to a later date, and it is uncertain how this will be resolved in the long term. ■

Lee Chang-yong, head of the Planning and Coordination Division of the G20 Summit Preparatory Committee, holds a Ph.D. in Economics from Harvard University and has served as Vice Chairman of the Financial Services Commission, a member of the Presidential Transition Committee's Economic Affairs Subcommittee, and a professor in the Department of Economics at Seoul National University.

Presenter

Lee Chang-yong

Moderator

Son Yeol

Discussants

Lee Sook-jong

Lee Seung-joo

Chun Jae-sung

Cho Hong-sik

Ha Young-sun

The East Asia Institute (EAI) is a core research institution for the MacArthur Foundation's "Asia Security Initiative" program and receives financial support. EAI has been hosting the "InfraVision Forum" since 2007, bringing together leading figures in Korea to provide a platform for open discussion on current national security issues, aiming to develop a blueprint for Korea's future infrastructure development. All content included in these proceedings represents individual views and does not necessarily reflect the official position of the G20 Preparatory Committee. Furthermore, as this is a reconstruction of the presentation content by the research institute, it may differ from the presenter's original views. Please cite the InfraVision Forum proceedings when quoting from them.