EDITORIAL: G-20 summit in Seoul

A disastrous currency war has apparently been averted, at least for the time being. In their latest summit in Seoul, leaders of the Group of 20 major economies re-affirmed their cooperation to overcome a world economic crisis.

The statement issued by the leaders expressed their commitment to "enhancing exchange rate flexibility ... and refraining from competitive devaluation of currencies."

The statement also promised to establish next year "indicative guidelines" to redress global economic imbalances and start assessing such imbalances. In addition, the document drew attention to the need to rein in unbridled capital flows into emerging countries due to extremely easy monetary policies in industrial nations.

The G-20 summit tried to ease tension between industrial and emerging nations by urging China to relax its control on the renminbi's exchange rates while pointing to the negative effects of the monetary easing by the United States. It is also important that the G-20 leaders recognized as their common challenge to ensure the synergy effects of exchange rate flexibility and structural reforms.

There is no doubt about the need to develop guidelines for reducing imbalances, although the summit failed to agree on specifics. Each country has a unique economic structure and conditions. Consideration should be given to these differences in developing the guidelines. Above all, they should stimulate structural reforms.

The United States proposed a numerical target of keeping each country's current-account imbalance within 4 percent of gross domestic product. But such clear targets could result in excessive dependence on exchange rate adjustments, deepening conflict among countries and even hindering economic growth.

Past Japan-U.S. trade friction and Japan's experience after the 1985 Plaza Accord show that it is futile to debate on how to correct imbalances without implementing structural reforms in individual countries. The G-20 should seek to develop a new system that ensures efforts by individual countries to reduce imbalances will boost the clout of the group as a whole.

The Seoul meeting was the fifth G-20 summit. The first was held two years ago in Washington. Policy cooperation by the G-20 contributed to containing the biggest economic crisis since the Great Depression. However, it then became clear that the recovery of the Japanese, U.S. and European economies would be a long, difficult process. Still, the G-20 has played a valuable role.

As the limits of the traditional fiscal and monetary policies became clear, the previous G-20 summit in Toronto stressed fiscal rehabilitation. Conflict arose among members seeking to promote exports to cover domestic demand shortages. The United States and Europe intensified criticism of Beijing, which refused to stop maintaining the renminbi at an artificially low level to increase exports.

Meanwhile, extreme monetary easing by Washington caused a weakening of the dollar with serious global repercussions. Currency depreciation competition among nations bred sharp discord among the G-20.

It is notable that the G-20 leaders displayed a certain degree of unity in Seoul despite serious challenges.

But the task of working out a prescription to cure the problems has been left unfinished. Efforts to find an effective remedy for a global economy plagued by unprecedented problems will test the collective wisdom of the world.

There are wide economic disparities among the G-20 members, which include both industrial and developing countries and both surplus- and deficit-running nations. But the group has the potential for development that the G-7 or the G-8 lacked. The G-20 should serve as the main platform for international cooperation in this age of globalization.

--The Asahi Shimbun, Nov. 13