Seoul G20 Summit: Why the currency question means as much to poor countries as the development agenda
By CAFOD’s economics analyst Christina Weller
G20 negotiators are set for another late night. Yesterday they failed to reach agreement during a red-eye session on the big agenda item: coordinated macroeconomic policies to support a sustainable, balanced and resilient recovery – the so-called “framework agenda”. And today the arrival of the G20 leaders made discussions more “political”, leading to the loss rather than gain of shared ground. Underlying tensions over currency valuation, which affects export competitiveness, have become hugely sensitive as all G20 countries seek to trade their way out of recession simultaneously.
The currency debate has been dominated by national self-interest of individual G20 countries. The world – and particularly the most vulnerable countries within it – need an international mechanism to coordinate monetary policy. The current institutions and mechanisms (or rather lack of them) have proven incapable of managing currency volatility or aggressive use of monetary policy to boost exports. Low-income countries suffer most under such conditions. An effective international monetary system could provide stability and support trade. If implemented in the right way it could also generate extra finance for development and action on climate change. But these ideas are not yet up for serious discussion at the G20.
On the other hand, the second news item of the day is the leaked text of the development section of the communiqué, which by contrast is reported to have few square brackets. (Bracketed text in these agreements indicates where countries have not yet reached consensus and are still negotiating terms and language.) This agenda is South Korea’s initiative and, they hope, a legacy of the first G20 summit to be held in a developing country.
The development agenda puts the focus on economic aspects of development and growth as a pre-requisite for progress. And this emphasis is certainly welcome – with gaping holes in infrastructure, industries struggling to be competitive, a lack of skilled and healthy workers, and regulation that is either poor or poorly implemented, developing nation economic robustness has been ignored for too long.
However, we need to be confident that the G20 has learned the over-arching lesson of the financial crisis: growth is a very poor proxy for progress or for real improvements to people’s lives. How countries grow matters – whether it is driven by asset bubbles and financial activity or by changes in the real economy, whether it includes and benefits the majority of economic actors in low-income countries.
The headline items of the development agenda are not in themselves controversial. Trade, infrastructure, financial inclusion, human resource development and others are all essential for economic development. But only if they are done in the right way – building rural roads so people can take their goods to market must feature alongside expressways to ports and the development of export infrastructure. This is sustainable growth that reduces poverty.
The Washington Consensus that promoted free market fundamentalism is soon to be replaced by a Seoul Consensus that embraces more diverse approaches to economic development. The need to invest directly in small-scale agriculture and small businesses in developing countries, leaving the discredited trickle-down effect behind, must be part of this shift.
CAFOD research has found that these small-scale parts of the economy have provided important safety nets during the global downturn, often absorbing laid-off workers and even providing a source of growth and demand during tough times. Their contribution to their economies is often underestimated: they employ a majority of workers in many countries most of whom are poor men and women, they are a source of innovation, and can be part of a strategy to diversify vulnerable developing nation economies. Small and micro businesses and small farmers can be part of a strategy to boost demand in local markets – helping to harness the unrealised economic potential of millions. This in turn can provide a vital link to ensure the presence of foreign investors or large exporting firms are felt in the broader economy by acting as suppliers to these firms or by learning from them.
The G20 may well work for small businesses and farmers in poor countries, but it needs to be specifically designed to do so, not rely on a vague hope that they must inevitably benefit from growth.
A development agenda, whilst welcome, will not by itself give developing countries what they need post-crisis. As the currency conflict illustrates, all the framework issues have serious implications for developing country producers and traders who hope to succeed in globalised markets. From how countries manage their deficits (will they cut spending in ways that affect poor country exports?) to financial regulation (will they regulate speculation in commodity prices that have real impacts on agricultural exporting and food-importing developing countries) – all the G20 issues matter for development.