THE recent G-20 Seoul Summit was a disappointment.

Because expectations were carefully

managed down, most were really not surprised to be disappointed.

When all is said and done, nothing really happened. The G-20 succeeded in assisting the traditional
and emerging powers to agree to disagree.

Pretty much more of the same; each country will continue doing whatever it was already doing.
Much ado about nothing really except the willingness to keep talking and worrying.

US President Barack Obama puts it best: The work that we do here is not always going to seem
dramatic. It's not always going to be immediately world changing. But step-by-step what we are
doing is building stronger international mechanisms and institutions that will help stabilise the
economy, ensure economic growth and reduce some tensions.

All the G-20 Summit managed to produce was a final document in which leaders agreed on various measures to
achieve economic stability, none of them specific enough to act upon, or enforceable.

British Prime Minister David Cameron added: The key thing is (the global trade imbalance) is being
discussed in a proper multilateral way without resort to tit-for-tat measures and selfish policies. Let's
hope it was not a multilateral monologue.

The communiqu reflected re-warmed pronouncements of good intensions. While understandably

short of actionable solutions, it did at least seem to acknowledge the difficulties of the situation.

Not surprisingly, the G-20 reiterated its commitment to work together towards strong, sustainable
and balanced (SSB) growth and to take additional measures to achieve shared objectives.

After dramatically forging a sense of unity during the crisis, the G-20 has now splintered with
competitive policies and rancour taking place instead of taking on coordinated policy actions.

While the leaders were side-tracked from making strong decisions, a new report from the
International Monetary Fund (IMF) suggested that much more forceful action on imbalances is likely
to be needed, and soon, with prospects of deficits in the advanced nations likely to double by 2014 if
nothing is done now.

All the G-20 Summit managed to produce was a final document in which leaders agreed on various
measures to achieve economic stability, none of them specific enough to act upon, or enforceable.

The Seoul Action Plan (SAP)

The G-20 launched the SAP, shaped with unity of purpose to ensure unwavering commitment to
cooperation, with each member making concrete policy commitments to deliver all three objectives
of SSB growth. Specifically, commitments were made to act in five policy areas:
Monetary and exchange rate policies: The G-20 Group will move toward more market-determined
exchange rate systems and enhance exchange rate flexibility to reflect underlying economic
fundamentals which China claims it's already doing and refrain from competitive devaluation of
currencies which the United States denies its QE2 (second round of quantitative easing) is engaged
in and help mitigate the risk of excessive volatility in capital flows facing some emerging market
economies by allowing the use of carefully designed macro-prudential measures sanctioning for the
first time capital controls which are increasingly being imposed by the likes of South Korea, China,
Brazil, the Philippines and Thailand flooded with foreign capital (arriving mostly from cheap excess
dollars from QE2 in search of higher yields), thus avoiding being considered global scofflaws.

Structural reforms: The G-20 Group will implement a range of structural reforms to boost and sustain
global demand, contribute to global re-balancing and strengthen multilateral cooperation to promote
external sustainability, and pursue the full range of policies conducive to reducing excessive
imbalances and maintaining current account imbalances at sustainable levels.

Since the last summit in 2009, commitments like these ran into insurmountable problems of not
being able to simultaneously agree on specific policies to achieve their ambitions, nor a timetable or
an enforceable mechanism to ensure everyone plays ball.

Leaders in Seoul expressed the conviction that this time would be different. They promised to
assess imbalances by nebulous-sounding indicative guidelines, to be developed by the Framework
Working Group (assisted by the IMF) and discussed by finance ministers in the first half of 2011.
This time, the G-20 talks of a shared responsibility (where) members with sustained, significant
external deficits pledge to undertake policies to support private savings and where appropriate
undertake fiscal consolidation, while maintaining open markets and strengthening export sectors.
Members with sustained significant external surpluses pledge to strengthen domestic sources of
growth.

But without effective coordinated cooperative action, unsustainable imbalances will eventually be
adjusted by market forces with the inevitable result of making things harder all round.

The risk now is for adjustment to be messier than it needs be. Where market forces are not allowed
to prevail (as in China), the temptation for politicians (in the United States and Europe) to try to force
adjustment through tariffs and import barriers can only grow.

I now sense a pervasiveness that the G-20 has reached the limit of cooperative efforts towards
global rebalancing. With advanced economies barely plodding along while emerging nations are
enjoying robust growth, reconnecting the different approaches to policies required will become
increasingly more difficult.

Bear in mind the Germans are still growing after rejecting US advances in 2009 to join the US
spending stimulus. China is growing smartly having rejected counsel from three US Administrations
to abandon its currency discipline.
Even the UK and France are pursuing more fiscal restraint. Only the United States is determined to
keep both the fiscal (hopefully) and monetary spigots open, while blaming everyone else for its
jobless recovery.

China, India and other Asian economies fear that rather than spurring more growth in the US, QE2 is
flooding the developing world with more dollars than they are able to efficiently absorb, producing
uncertain exchange rate volatility to the detriment of their external trade and sending the world's
dollar-denominated commodity prices climbing with serious impact on domestic inflation.

Agreeing to measurable targets for external imbalances is bound to prove difficult. Already, before
the summit, China and Germany had rejected specific targets for current accounts (amounting to
new controls on trade and capital flows which go against three decades of US policy against barriers
to the free flow of money and goods) just as other groups of countries had refused in 2009 to sign up
to specific stimulus targets.

As a compromise, the vague notion of indicative guidelines was set to usher in the year ahead of
squabbling about the right indicators to use.

The underlying problem, as I see it, lies in forcing nations to agree when they have irreconcilable
differences over their global economic approaches and domestic policy prescriptions.

In practice, no country is willing to cede sovereignty of its basic economic policies to a multilateral
agency. The follow-through is bound to raise serious problems.

Fiscal policies: Advanced economies will formulate and implement clear, credible, ambitious and
growth friendly medium-term fiscal consolidation plans. Like it nor not, the conflict between the new
world approach (essentially Keynesian, involving continuing stimulus with fiscal adjustments over the
medium term when economic recovery is entrenched) and the old world approach (largely Hayekian,
i.e. fiscal consolidation to address the deficit and debt problems now because it is good for
confidence, consumption and investment today according to European Central Bank President Jean-
Claude Trichet) is real and here to stay. Its resolution, in my view, heightens the urgent need for
serious global coordination of polices, especially monetary policy.

Financial reforms: The G-20 Group is committed to take action to raise standards and ensure
national authorities implement global standards developed to deter, consistently, in a way that
ensures a level playing field and avoids fragmentation of markets, protectionism and regulatory
arbitrage (and) will implement fully the new bank capital and liquidity standards and address too-big-
to-fail problems. As I understand it, officials will finalise a package of capital surcharges and other
safety measures next year.

IMF reform: the G-20 made a historic breakthrough in granting a greater voice to developing nations
at the governance of the IMF at the expense of Europe. This ensures that quotas and management
composition at the IMF are more reflective of new global economic realities.
China will become the third largest member of the 187-strong institution. Horse-trading is still on-
going on the final re-composition of the boards and to pursue all outstanding governance reform
issues at the World Bank and IMF.

Trade and development policies: The G-20 Group reaffirms its commitment to free trade and
investment (and) will refrain from introducing, and oppose protectionist actions in all forms and
recognise the importance of a prompt conclusion of the Doha negotiations.

However, it offered no sense on how to resolve serious tensions between rich and poor nations that
tank the talks in the first place.

Shared growth

The Seoul Development Consensus (SDC) is intended to steer international development away from
financial handouts to broaden the factors that promote economic growth, especially in infrastructure.

It stands in contrast to the 1989 Washington Consensus, which focussed on fiscal discipline,
privatisation and trade liberalisation.

The SDC envisages rich countries to engage poor nations as equal partners and allow them to set
their own strategic course; no one-size-fits-all formula for development success i.e. leaves nations to
design and implement development strategies tailored to individual needs and circumstances; and a
multi-year action plan focusing on infrastructure, private investment, jobs and food security for poor
countries.

In an unprecedented step, a panel of 12 nations was created to work in 2011 on measures to

mobilise infrastructure financing. On these, the G-20 promised to deliver. As I see it, SDC's
pragmatic and pluralistic view of development is appealing enough. But it avoided setting numerical
targets that can hold richer nations to account in areas such as opening up markets to exports from
the developing world.

It's a pity the G-20 lacked leadership this time around. No doubt faltering US influence will produce a
vacuum. But the fact remains the United States is still the world's largest economy, the issuer of its
sole reserve currency, and its lone military superpower.

Future leadership is now tied to US policies and priorities to lead the global economy. To begin with,
US primacy and credibility can be regained only with robust all-round economic performance.

As someone just remarked: the US needs to start punching above its weight rather than below it. It is
also a fact that on current trends, emerging markets and developing nations will account for 60% of
global gross domestic product within six years. It's a different world ahead. This heightens the need
to find a new normal whereby US relationship with China and the new world remains central in the
challenges going forward.
As prof L. Summers puts it this week: Our wisdom, their wisdom, the way in which we interact is
going to be of the utmost importance. Leaderless, the G-20 now shapes up as the least ineffective
global forum not enough to keep another crisis away, or deal with one when it arrives. We just have
to wait and see.