“Great Boast, Small Roast”
Statement on Results of Seoul G20 Summit
The Seoul G20 Summit was indeed a ‘great boast but small roast’. The Summit has come to an end boasting only pitiful results while ill-conceived provisions that will drive the global economy in the wrong direction were agreed upon.
The Summit’s core issues of currency and global imbalances made no further progress from the discussions at the Gyeongju finance ministers’ meeting. The agreement remains obscure and lacks possibility of implementation. The heads of state merely reiterated Gyeongju meeting’s “market-determined foreign exchange rate”. However, the fact that the US, which had triggered the currency battle in the first place, adopted its second quantitative easing policy just after the Gyeongju agreement shows that this agreement is toothless. No agreement was made on a guideline to control current account imbalances – only on the adoption of an early-warning system.
The currency and current account issues were tabled by the US, which at the moment is facing difficulties due to the protracted recession. Even after bubbles in its economy burst, it continued to subsidize Wall Street and corporations while avoiding any fundamental reforms to its economic structure. It is looking for other countries to blame for its wrongdoings. Such ‘exporting’ of its economic failures have not only angered newly emerging countries like China and Brazil but also other G8 countries like Germany. As a result, President Lee Myung Bak was unable to receive any credit for siding with the US and initially proposing a guideline on current account balance. The market-determined foreign exchange rate stated by the declaration is a mere play with words. Under the present US-dollar-reserve-currency regime, quantitative easing itself is in direct conflict with the idea of a market-determined exchange rate. The only solution to the currency war is overcoming the use of one single currency as the reserve currency and establishing a new global currency regime.
Other issues expected to be agreed at the Seoul Summit are also problematic.
G20 leaders say that the quota change of the International Monetary Fund(IMF) is a “fundamental reform to IMF’s governance structure”, however, it is far from “fundamental”. The true fundamental problems of the IMF are its loan conditionalities that enforce neoliberal restructuring programs and its idea of basing voting rights according to the amount of financial contribution. The reason why such structure prevails is because the US has veto rights and also because of the persistent revolving door system whereby US and European corporate and political elite become high ranking officials of related institutions. Therefore, the IMF is inevitably under heavy influence of official and unofficial lobbying from developed countries and corporations. The strong triangular structure of IMF-US Treasury-Wall Street still continues. Unless this fundamental problem is resolved, any reforms to the IMF will be circumventive.
The Seoul G20 Declaration announced that 6% of IMF’s quota will be shifted to emerging countries. However, this is a pure deception, since only 2% of voting rights will be shifted from developed to developing countries, while the other 4% is a transfer of rights from poorer developing countries to newly emerging developing countries. The bigger problem is the fact that the veto right of the US has not been tackled. As long as the US maintains its veto right, there can be no meaningful reform to the IMF.
The Global Financial Safety Net, which was ambitiously promoted by the Korean government as a ‘Seoul Initiative’, has fundamental limit to cope with capital fluctuations. A true global financial safety net entails an upheaval of the neoliberal financial system, which led to the financial crisis in the first place. In this sense, the financial safety net measures agreed upon at the Seoul Summit are very limited measures to tackle capital volatility in developing countries. Furthermore, if leaders indeed wanted to control such capital volatility, then they should have adopted a financial transaction tax, which is the only effective tool to rein in short-term cross-border speculative capital.
There was also an agreement to adopt a stronger bank capital and liquidity requirements for systemically important financial institutions (SIFIs). However, such requirements fall far short of needed reform. According to the Seoul Declaration and related documents, “SIFIs and […] in particular financial institutions that are globally systemic (G-SIFIs) should have higher loss absorbency capacity” as well as strengthen other prudential measures. However, it is no longer feasible to expect financial institutions to go back to their original role of allocating capital adequately and as needed in the real economy rather than focus on speculative investments to maximize their own profits. Therefore, what is needed is scrapping of neoliberal policies that aim for universal banking and consolidation, in favour of a specialized banking system where non-banking sectors are tightly controlled.
G20 leaders have bluntly turned a deaf ear to demands of the international trade union movement and civil society organizations. If the G20 cannot respond to the diverse and concrete proposals such as job creation and welfare expansion through progressive taxing, adoption of financial transactions tax, tighter regulation on hedge funds, abolishment of new forms of derivatives that disperse credit risk, bank levy to put a stop to the too-big-to-fail framework, to name a few, then there is no reason for its existence. In short, the Seoul G20 Summit only served to reaffirm the fact that the G20 is not an alternative for a sustainable global economy.
In regard to the issue of development, G20’s working group clearly calls for private sector-led investment and growth, which are indeed important. However, it seems that the G20 had already forgotten the commitments that were made just two months ago at the UN Assembly in New York in regard to MDGs. There are only five years left to reach the globally committed goals of alleviating poverty, illiteracy, maternal deaths, food crises in poor countries etc. Naively hoping economic growth and private sector investment will bring about solutions to these social crises is nothing other than negligence.
The Seoul G20 Summit also reiterated that leaders will exert effort to conclude the WTO Doha Round and to collaborate on furthering neoliberal free trade. On the other hand, there was no meaningful agreement on climate change. Nonetheless, President Lee, who had trampled on workers and workers’ rights, bulldozed his 4 River Project and violated human rights and democratic values, received an applaud for his role as the chair of G20.
The G20 is making workers and the common people pay for the economic crisis. As soon as the crisis erupted, governments agreed that there was no alternative but to fuel huge bailout funds into ailing corporations. The real culprits of the crisis got away, while innocent taxpayers were made to pay for their wrongdoings. Now, in face of fiscal crises, the G20 has once again agreed on austerity measures. Governments have announced restructuring of the public sector, cutback in welfare, cap on income and layoffs. UK government recently announced that 500,000 government workers will be laid off, while the French government pushed ahead with its pension reforms despite mass opposition. Germany called for strict austerity measures to be adopted in Greece. These austerity measures will not only endanger the lives of working families but can also lead to another recession. The G20’s agreement on such measures highlights its real intentions – to make workers and general public pay for the crisis while corporations get off free.
At the Seoul Summit, the first Business Summit was held as initially proposed by the Korean government. CEOs from 120 global companies made reports of their meetings and delivered them to the heads of state. 12 G20 leaders also participated in various Business Summit events. Such exchanges show how corporate lobbying plays into the G20. Some of the recommendations made by these corporations – many of whom should be held accountable for the crisis – include expansion of neoliberal free trade and further easing of financial and corporate regulations. President Lee Myung Bak participated in the opening plenary and said discussion will take place on making Business Summits continue in tandem with G20 summits. As such, G20 has clearly manifested itself by oppressing the voice of social movements while proactively accommodating the demands of corporations.
The Seoul Summit, just like previous summits, made a “great boast” and a lot of fuss but came up with “no roast”. G20 was busy protecting the culprits of the economic crisis and their own narrow interests while avoiding fundamental reforms.
We never delegated the future of the global economy and our future to the leaders of the G20. People come before profits. Another world is possible!
12th November, 2010
Put People First! Korean People’s G20 Response Action
Korean Confederation of Trade Unions