Seoul: As an ongoing currency war overshadows today’s beginning of the first G20 Summit in Seoul, Korea, the US-China currency imbroglio threatens to crowd out development topics such as a “Robin Hood tax” from the agenda.
Korea, the first emerging economy to host a G20 summit, tried hard to find a balance between the rich countries’ macroeconomic interests on one and poverty reduction issues on the other.“Narrowing the development gap and reducing poverty are integral to our objectives to achieve strong, sustainable and balanced growth”, the Korean preparatory committee states.
Currency wars and financial aftershocks
With OECD labour and factor markets still refusing to recover from the financial crisis, most developed countries are trapped between low growth rates and large fiscal deficits. Therefore, they resorted to monetary policy measures and exchange rate management to stimulate their economies. In a vicious cycle, governments attempted to artificially keep exchange rates low by problems by flooding the currency markets with liquidity.
The fuse finally blew this week when the US Federal Reserve Bank purchased US bonds worth 600 billion dollars, thereby pushing down the price of the currency. This has triggered criticism among the other G20 countries in the preparatory meetings, as the US has accused especially China of exchange rate manipulation. „The delegates were not willing to compromise. We even needed to keep the doors open, because the debate produced so much heat,” a a Korean negotiator told the German press.
While the US welcomes the dollar depreciation to narrow their 120 billion dollar current account deficit, many G20 countries regard this as a “beggar-thy-neighbour” policy. Germany, highly dependent on its exports to fight a double-dip recession, fears that a depreciation of the dollar in relation to the euro will limit its exports.
Blowing smoke on development agenda?
Experts fear that the currency debate has an adverse impact by distracting from poverty and climate change issues. Oxfam, an international development organisation, criticises the exclusivce focus on the G20 member’s growth interests. „Growth, while necessary, is not sufficient to uplift poor people from poverty,“ it said. Instead the Summit needs to address the „volatility in basic food commodities prices and climate change, as it severely hits farmers in poor countries.”
UN Secretary General, Ban Ki-Moon, shares this fear. „Sixty-four million people have been pushed into extreme poverty this year.” We cannot afford to think narrowly about development and economic growth”, he is cited in the Hindustan Times.
In contrast, the Indian Prime Minister Singh backed the US. “Anything that stimulates the growth and entrepreneurship in the US helps the cause of global prosperity,” Mr. Singh told the New York Times this Monday.
Liliana Rojas-Suarez from the “Centre for Global Development” believes that exchange rate issues are in fact development issues: “Their actions [US and China] hurt developing and emerging countries that allow flexibility in their exchange rates. Volatility is dangerous for them, as it impedes planning security.”
„Calling Robin Hood“
An alliance of various civil society groups is calling for the G20 leaders to introduce a global Financial Transaction Tax in order to live up to their main mandate, financial regulation, instead of restricting banking regulation to the Basel III agreement.
The joint campaign includes some of the world’s biggest NGOs and is supported by Nobel Laureate Joseph Stiglitz. „The G20 must now turn the global economic crisis into an opportunity to help the World’s poorest. A tiny tax on the banks could raise hundreds of billions needed for those around the world feeling the effects of a crisis they did the least to create.“ Jenny Ricks from the Robin Hood Tax Campaign says.
During the opening demonstration is Seoul on 8 November, protesters also raised their voices in favour of such a tax.
The G20 Summit on the web
- Official G20 website (html)
- Official site of the Korean Summit (html)
- Personal Blog of the Summit’s Chairman (html)
- Oxfam’s Alternative Development Agenda for the Summit (html)
- FRIDE think tank’c critical reflections on the G20 Summit (html)
- SOMO civil society newsletter Nov 4., (html)