(Yonhap Interview) Bosworth supports S. Korea's bid to host G20 summit next year

By Hwang Doo-hyong
WASHINGTON, Sept. 24 (Yonhap) -- South Korea needs to host another Group of 20
summit next year to institutionalize the economic summit of advanced and major
developing economies that greatly helped the world muddle through the worst
global recession in decades, a scholar said Thursday.
"I definitely believe that the next G-20 summit should be in Asia," said Barry
Bosworth, a senior research fellow at the Brookings Institution, in an interview
with Yonhap News Agency. "Korea seems reasonable to me."
Leaders of the G-20 countries, who will get together in Pittsburgh Friday for the
third such meeting since financial crisis erupted last September, have yet to
decide whether to hold another summit next year. Some members dislike the idea of
making it a regular summit in place of or at least complementary to the G-8
gathering of the richest countries.
South Korean officials have said that they have already won support for their bid
from China, Japan and several other key G-20 members.
South Korea, the host of the G-20 finance ministers' meeting next year, wants to
hold the summit so the 20 countries, which account for more than 85 percent of
global output, can continue to play an important role in the shaping of the
post-crisis economy. Britain, which hosted the G-20 summit in London in April, is
this year's chaircountry for the finance ministerial meeting.
Bosworth also expressed hope that the G-20 will eventually replace the G-8 summit
exclusive of advanced economies, which has often been under fire for its failure
to prevent the economic meltdown.
"I favor making the G-20 the preeminent meeting because it is more representative
of the participants in the global economy," the scholar said. "Personally, I
would abandon the G-8 on the grounds that there are too many summits and it looks
too much like a cabal of the rich countries. There are many financial and NATO
issues that the U.S. needs to coordinate with Europe and Japan, but that can be
done at a lower level than national leaders."
The G-20 is said to have played a greater role in helping the global recovery
through coordinated measures against protectionism and implementing expansionary
fiscal and eased monetary policy, although its efforts against protectionism were
tarnished by U.S. punitive tariffs on Chinese tires and an ensuing attempt by
China to retaliate.
Bosworth said South Korea may begin considering phasing out the expansionary
fiscal and eased monetary policies due to its speedy recovery, helped by robust
exports.
South Korea is among the countries recovering fastest, with its economy having
expanded 2.3 percent in the second quarter from the first three months of this
year, the fastest growth in more than five years.
The South Korean government and many experts forecast about 1 percent contraction
for all of this year -- a sharp rise from the more than 4 percent contraction
projected earlier this year.
The country's stock value and foreign exchange reserves have also recovered to
pre-recession levels. The foreign exchange reserves hit a 13-month high in August
of US$245 billion, helped by burgeoning trade surplus and the Seoul bourse's
reaching the 1,700 mark, boosted by foreign investors.
On the question if it's time for South Korea to consider implementing the
so-called exit plans, he said, "Perhaps. It is one of the countries with the
fastest recovery and it will be part of the discussion of when stimulus measures
should be phased back. But I also think that Korea has far higher levels of
excess capacity than the government recognizes."
South Korea's state debt is about 30 percent of its gross domestic product, far
less than the 100 percent or more in the United States, Japan and several other
advanced economies.
"There is a large amount of underemployment in unproductive irregular
employment," he said. "Thus, Korea could afford a higher growth path for some
time."
Despite signs of early recovery, Bosworth said that exit plans are "premature"
for most countries, adding, "I believe they will want to start with a scaling
back of some of the financial measures."
The International Monetary Fund has forecast that the global economy will shrink
by 1.4 percent this year, and predicted next year will witness a growth of 2.5
percent, up from an earlier projection of 1.9 percent growth.
The scholar, meanwhile, advised South Korea to "do much more to develop its
domestic markets - particularly services," fearing a possible backlash from
overseas competitors for the weak South Korean currency helping South Korean
products remain more competitive in the global market.
"Korea raises some concerns because it is one of the countries whose adjustment
was made easy by a currency revaluation," he said. "While it was determined by
market factors, Korea's recovery is partially at the expense of its trading
partners. If it seeks to achieve that growth with an undervalued exchange rate
and trade surpluses, its trading partners will be disadvantaged."
He opposed South Korea possessing excessive amount of foreign exchange reserves.
"There is a growing problem of further reserve accumulation," he said. "Korea may
argue that the previous high level of reserves was not enough and it may seek to
accumulate even more. Will it sterilize the capital inflows that it diverts to
reserves? If so, this will cause increased trade frictions."
South Korea was the world's sixth-largest holder of foreign exchange reserves
after China, Japan, Russia, Taiwan and India, with US$245 billion as of the end
of August. China has more than $2.1 trillion in foreign exchange reserves and
Japan over $1 trillion.
Bosworth agreed with the criticism that the G-8, IMF and World Bank failed to
head off the current economic crisis and need major reform.
"But the excesses were largely in the U.S. markets and the U.S. would not have
paid any attention to the entreaties of international institutions," he said.
"Most regulatory observers and economists failed to see the severity of the
financial crisis in the United States, and then they wasted time on discussions
of decoupling. Similarly, I don't think the international institutions have had
much influence on China with respect to its export-promotion policies."
The growing Asian economies, including China and India, will help diversify the
global economy, which has been dominated by the U.S. for decades, he said.
"The growth of India and China is a wonderful achievement of the recent quarter
century, but it is not a zero sum game in which their gains are offset by others'
losses," he said. "I think Asia has emerged as a greater influence on the global
economy and I expect to see the development of a strong regional economy that
will provide a more diversified global economy, balancing the United States and
Asia."
hdh@yna.co.kr
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