G20 finance ministers' meeting closes with agreement on IMF reform, market-determined exchange rates

The G20 ministerial meeting on Saturday ended with an agreement on the IMF governance reform and progress on the currency debate.

"Key elements (of the agreement) includes shifts in quota shares to dynamic emerging markets and developing countries (EMDC) and to underrepresented countries of over 6 percent," the G20 finance ministers and central bankers said in a joint communiqu.

The finance leaders also made a leap forward in the currency debate, conveying in the communiqu an explicit message to "move towards more market determined exchange rate systems."

Announcing the communiqu at the closing press conference, South Korean Finance Minister Yoon Jeung-hyun, who chaired the two- day meeting, announced the meeting ended "in success."

He also praised the outcome of the meeting, saying the meeting put an end to the recent currency dispute that has casted a range of uncertainties and instabilities around the global economies.

Yoon also hoped there will be more in-depth, broader discussions on those agenda items at the upcoming G20 Summit in Seoul.

Hosted in South Korea's southern city of Gyeongju, the meeting brought together finance minister and central bank governors from 20 member countries, while inviting heads of major international organizations, such as the IMF and the World Bank, and leaders of five non-member countries.

Due to the recent currency dispute and the thorny IMF governance reform issue, the ministerial meeting went on a bumpy road although the leaders strived to reconcile their differences.

In particular, South Korea, as chair, put every effort to see a breakthrough at the meeting, with South Korean President in his opening speech confirming the meeting should reach a deal on major agenda items.

The communiqu released will be submitted to the upcoming G20 Summit, slated to be held on Nov. 11 - 12 in Seoul, based on which will be continued the summit talks.

Emerging Countries to Have Bigger Say in IMF

As a result of the meeting, the long-held discussion on the IMF quota reform was settled, with more than 6 percent of the total quota decided to be redistributed to emerging countries.

Despite a general agreement on the quota shift, emerging and advanced countries have been clashing on how much of the total share should be reallocated.

The communiqu also called for a reform on the governance of the organization, guaranteeing "greater representation for emerging countries at the Executive Board through two fewer advanced European chairs."

As the seats at the Board reserved for advanced countries decreased, it is expected the seats will be alternatively given to those from emerging countries.

Accordingly, the countries to compose the Board to be revised to U.S., Japan, four European countries, members of BRICs, IMF Managing Director Dominique Strauss-Kahn told reporters at a closing briefing.

The quota shift will be completed by January 2014, after the Fund conducts a comprehensive review of the formula by January 2013, no later than which the board change will also come.

The result, according to the South Korean finance minister, was a further advance from the past achievements, considering the previous Pittsburgh Summit marked an agreement on a five-percent quota shift.

"It was more than what we had expected," Finance Minister Yoon commented, saying he faced numerous challenges as the country strived to have diverse opinions converge.

The reform was also praised by the IMF head, who called the biggest change to the Fund since its creation.

As a result of the reform, Strauss-Kahn expected stronger legitimacy of the Fund in terms of representation and better representation of the real global economy.

Meanwhile, China welcomed the reform, with Zhou Xiaochuan, central bank governor, saying China should be promoted in terms of its quota and voting right in the IMF.

Middle Ground Found for Exchange Rate Debate

The currency issue, which played the main role to draw global attention to Gyeongju, ended with progress as well, satisfying the chair South Korean Finance Minister, who proudly announced an end of the currency dispute as a result of the meeting.

Emphasizing it will move towards more market determined exchange rate systems, the G20 said the planned actions will " promote a stable and well-functioning international monetary system."

It was noticeable that in the Gyeongju communiqu, the currency-related term was changed from "market-oriented," which was previously used, to the new language "market-determined."

Finance Minister Yoon explained that the new term was chosen to put more weight on the role of market, while leaders sought a middle ground between their contrasting viewpoints.

Also, the G20 dealt with the current account imbalance issue, a broader topic closely linked to the exchange rate issue.

As the recent currency issue was born at the heart of the trade imbalance, some countries went as radical as explicitly designating the numerical figure to narrow the amount of current account surpluses or deficits.

Amid polarized opinions, countries took up the option to pursue "policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels."

Instead of adopting a definite figure, such as 4 percent of the total GDP known to be submitted by the U.S., the G20 agreed on " indicative guidelines to be agreed," starting from which further talks will continue, Finance Minister Yoon Jeung-hyun told reporters.

The Mutual Assessment Process (MAP) will also be conducted, once "persistently large imbalances" are detected, expanding the role of the MAP to the imbalance issue, according to the communiqu .

The power to conduct the MAP will be given to the IMF, which will probe into fiscal, monetary, financial sector, structural, exchange rate and other policies, said the joint statement.

The other side, on the other hand, has been refuting the claim, one's exchange rate policies had little to do with other countries' current account deficits, or the apparent global imbalance.

As the ending gave birth to a revised clause on the thorny issue, though not as radical as hoped by some countries, but enough to call as an advance, the currency dispute will not likely linger on as an obstacle to the success of the upcoming Seoul Summit.

[Source: Xinhua, Gyeongju, South Korea, 23Oct10]

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