This week’s Summit in Seoul is a milestone as it is the first time that the G-20 Summit has been held in the Asia-Pacific region, now the emerging centre of gravity for the world economy, where the dynamic economies of China and India are leading the global recovery. But the Seoul Summit is also to be recognised for placing development on the G-20 agenda. United Nations Secretary-General Ban Ki-moon will lead the Summit’s discussion on development and include the opinions of those countries — and the voices of billions of the world’s population — not represented by the G-20 leaders at this critical forum. Under the auspices of the United Nations Economic and Social Commission for Asia and the Pacific, economists and representatives of 26 Asian countries gathered last week in Bangkok to reflect on the agenda of the Seoul Summit from the perspective of excluded poorer countries.
The challenges that the G-20 leaders will confront include the need to consolidate the momentum of global economic recovery especially in view of this recovery’s fragile and uneven nature. The winding down of fiscal stimuli should be considered very cautiously in view of the continuing risks of a double dip recession. Concerns were raised by representatives of the smaller countries regarding policies adopted in advanced countries that are leading to massive short-term capital outflows to emerging market economies with consequences such as asset price bubbles, inflationary pressures and exchange rate appreciation with highly disruptive effects.
G-20 leaders should support the use of capital controls when needed by the affected countries. Another threat to recovery is from possible currency wars and protectionism in the developed countries that should be shunned at all costs.
The declining demand in the western world as they unwind the fiscal and current account imbalances poses a new medium-term challenge for sustaining the dynamism of Asia-Pacific economies. With 950 million people living in poverty and with wide development gaps between and within countries, there is considerable headroom for generation of aggregate demand with through inclusive policies. The challenge thrown up by the financial crisis in terms of diminishing aggregate demand can be turned into an opportunity for promoting inclusive development. Poverty reduction should no more be seen as a social welfare scheme but a critical part of the strategy to promote growth itself.
The G-20 leaders should give a clear and strong message that achievement of the Millennium Development Goals (MDG), narrowing development gaps and other policies to foster balanced development have to now occupy a central place in sustaining growth in a post-crisis world.
Specifically, the latent potential of the poor to generate aggregate demand can be harnessed through promoting agriculture and rural development, strengthening social protection, enhancing financial inclusion, and promoting job creation among other policies within the emerging markets and among the excluded and poorer countries.
The poorer countries need to be assisted in closing the development gaps through enhanced overseas development assistance and development financing. The potential of South-South cooperation also needs to be fully exploited in closing the development gaps. Establishing a regional financial architecture — especially in Asia-Pacific — may assist in mediating between the region’s growing excess savings and vast unmet investment needs for infrastructure development. G-20 leaders could also support a tax on international financial transactions to help generate billions of dollars of revenue to fund achievement of the MDGs while moderating the volatility of capital flows.
While the adoption of international standards of prudential financial regulation is important to all countries, regardless of their level of development, it should be recognised that low income countries lack institutional and technical capabilities for their implementation. Thus, it is important to support these countries with technical assistance not only to help them develop modern financial systems but also to implement modern financial regulatory and supervisory functions.
Finally, the crisis has highlighted the long pending agenda of reform of international financial architecture. These include reform of International Monetary Fund (IMF) conditionalities, creation of a global reserve currency based on special drawing rights that can be issued in a countercyclical manner, and enhanced voice and quota of developing countries in the Bretton Woods Institutions for addressing the democratic deficit are high on the agenda to restore the legitimacy, effectiveness and development-friendliness of the international financial system.
To sum up, the G-20 Summit has many challenges to address. However, with the changing economic geography and the rise of emerging market countries as growth poles of the world economy, the entire world economy has a stake in sustaining their dynamism. Hence, development becomes a key issue on the agenda. The new thinking in the post-crisis world is that the achievement of the MDGs and the narrowing of development gaps have a central place in achieving strong, sustainable and balanced growth. In this respect, the United Nations and of the leaders of 20 nations should work together to seek a better future for all nations, and for all the world’s people.