Group of 20 Countries Finds Its Feet: Finance Ministers Agree on an Economic Review Agenda

One of the first tasks on President Barack Obama’s agenda after the frenzy of the U.S. midterm elections next week is to attend the leaders’ summit of the Group of 20 developed and developing nations in Seoul. Like a toddler of two, the Group of 20 is learning to stand on its own two feet, but it still faces the formidable hurdle of returning the global economy to a path of strong, sustainable, and balanced growth. To help the leaders with this challenge the G-20 finance ministers and central bank governors met in Gyeongju, South Korea, this past weekend to agree upon an agenda and priorities in preparation for the leaders’ summit next month.

The resulting communiqué from these G-20 officials adopts many of the recommendations that the Center for American Progress has repeatedly called for. Among these recommendations are a global move toward rebalancing misaligned exchange rates, reform of the International Monetary Fund’s voting and governance structure to appropriately represent emerging and developing countries, and support for the healthy operation of the international monetary and financial system to foster above all job creation.

At the heart of the discussions on currency reform in Gyeongju this past weekend was the issue of rebalancing China’s undervalued currency. At the November G-20 leaders’ summit, President Obama will have a great opportunity to forge a multilateral response to China’s exchange rate misalignment since Asian and European economies also feel the pinch of China’s exchange rate policy—tension that contributes to the recent flare-up in Sino-Japanese relations—not to mention developing countries that are being priced out of export markets or pressured into undertaking competitive currency devaluations of their own.

But equally important in the recent communiqué out of South Korea is the commitment to reform the International Monetary Fund so that emerging countries such as China, India, and Brazil, among others, have a greater role commensurate with their growing share of the responsibility for the health of the global economy. When the G-20 leaders meet next month, they should now be able to agree on the formula for these reforms, which will make the IMF the venue to address rebalancing the global economy, including through market-determined exchange rates to prevent competitive devaluations.

At the same time, by acknowledging the need to foster job creation in the communiqué, the G-20 finance ministers and central bank governors leave the door open for the leaders to take on a much more active role in discussing tangible strategies to create jobs for the tens of millions of people worldwide cast out of work by the recent global financial crisis and the Great Recession.

In short, the G-20 communiqué this past weekend lays out an ambitious list of issues for the G-20 leaders to address in Seoul. Still, avoiding messy confrontations at the November meeting around currencies or the formula for a new voting and governance structure at the IMF is unlikely, which is for the better since not addressing these issues would call the relevance and legitimacy of the G-20 into question.

The ongoing challenge (as the Center for American Progress has pointed out) remains a commitment by all countries involved to actually implement the principles they sign on to. That will be the real test of the upcoming November G-20 leaders’ summit.

Sabina Dewan is Associate Director of International Economic Policy at the Center for American Progress.