In the office of the Governor of the Bank of Israel in Jerusalem, there is a bust of John Maynard Keynes. A few months ago, during my meeting with Governor Professor Stanley Fischer, an outstanding economist, he told me that Keynes was watching how the current world economic crisis was being dealt with. And so he might observe the G-20 summit, which was held in his own home country, Great Britain.
The G-20 countries cover 85% of the world's GDP, 80% of international trade, and 65% of the global population. The G-20 meeting originated from the 1999 forum where the G-20 finance ministers gathered to discuss possible options to handle the economic crisis sweeping through Asia.
When each of the G-20 leaders was approaching the conference hall, huddling through the demonstration in the streets of London, she or he was pre-occupied with different agendas. President Obama put the highest priorities on stimulus packages, while President Sarkozy and Chancellor Merkel were focusing on the financial regulation reforms, and President Hu Jintao was pondering the issue of reserve currency. However, despite their different priorities and points of view, the G-20 leaders managed to iron out the following boosting and regulatory measures to cure global sickness.
First, the most spectacular agreement among leaders in London was to inject $1.1 trillion dollar into the veins of a paralyzed economy. This historic figure includes an additional $500 billion for IMF resources, $250 billion by a new SDR allocation, at least $100 billion of increased leading capacity of Multinational Developments Banks, and $250 billion for trade finance. The unprecedented commitment was welcomed by jumps in stock market indices around the world.
Second, the new fiscal policy will also greatly buttress the faltering economy through $5 trillion, with the goal of a 4% increase in growth rate and millions of jobs created by the end of next year. Large sums of money are expected to be invested to support sustainable development through low-carbon green growth projects.
Thirdly, acknowledging that irregular behavior by and poor supervision over financial agencies were main causes of their crisis, the G-20 leaders committed to establishing a tight supervisory and regulatory mechanism on the financial system. Strict measures are to be introduced to regulate the most damaging hedge funds, financial ratings agencies and tax havens. The G-20 leaders entrusted the IMF and Financial Stability Board (FSB) with monitoring implementation and submitting a report to the next Finance Ministers' meeting in this November.
Fourth, global trade also won a significant achievement. At the first G-20 summit in Washington D.C. last November, the world leaders agreed to the proposal of Korean President Lee Myung-bak, that no new barriers to trade and investment should be raised for the next 12 months. This time, the leaders in London once more confirmed their support for the President Lee's initiative of the standstill and agreed to extend it to the end of 2010. At least $250 billion were ensured for trade finance for the following two years. In addition, the WTO was designated as a point of notification and monitoring, and is required to publish regular reports on the implementation status of each country.
Lastly, as part of the reform of the international financial institutions, the leaders asked the IMF to finish its work of reviewing quota by January 2011, and also requested the World Bank to adjust its rights of representation by the 2010 spring meeting. These reforms are designed to reflect the power of each country's economy in the decision-making process at international financial organizations.
Despite the summit outcome, the question whether we can refer to it as a success depends on its implementation. Fortunately, there are several positive signals for faithful implementation. Concrete targets, numbers and years, monitoring mandates, time table and action plan, mandatory publication of implementation reports, and the agreement to hold a third summit, are some meaningful examples.
After all, history shows that the will of each country as well as global cooperation are the most important elements for economic recovery. The letters of the word 'crisis' in the Chinese language mean 'danger' and 'opportunity' together. The opportunity can be caught only by people of determined will. If we, as a world family, unite against the danger, we will be able to catch the 'opportunities'. Then, John Maynard Keynes in Governor Fischer's office will smile again.
The writer is Ambassador of the Republic of Korea to the State of Israel.
Published by Globes [online], Israel business news - www.globes.co.il - on April 6, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009