On the “yes” side of the ledger, the first immediate impact of the G20 Summit was an explicit recognition that the major emerging markets matter in the global financial system, which the Financial Times recently claimed “marked a shift in economic power.” China, Indonesia, and Korea (and of course, Japan) were participants in the meeting, and although these countries were not viewed as leading the agenda, they certainly had an influence on the final outcome.
Another immediate outcome was a commitment to increase the voice and participation of the Asian economies in the international financial institutions, such as the World Bank and IMF, and to provide additional financing support to the region if needed. Although only three emerging Asian countries were signatories to the G20 statement, if they implement the action plan to improve transparency, regulation, supervision, risk management, and international coordination in the financial sector, it should have positive impacts on financial stability in the region. Also, this would be leadership by example -- China, Indonesia, Japan, and Korea could push implementation of these actions through regional forums, such as ASEAN and APEC. In fact, an indirect benefit of the G20 Summit is that it brought together Asian policy makers and on the sidelines of the meeting, China, Korea, and Japan agreed to boost their bilateral currency swap agreements and expand the May agreement for $80 billion among the ASEAN countries. Finally, the G20 Summit has provided momentum for cooperation. Leaders attending the upcoming APEC summit this weekend are expected to push the implementation of the G20 Statement and action plan.
On the “no” side of the ledger, most of the 28 actions for immediate implementation (i.e., by March 31, 2009) outlined in the G20 Statement are not directly applicable to most emerging economies in Asia. For example, a substantial portion of the short-term actions relate to complex financial instruments, derivatives, off-balance sheet vehicles, credit ratings agencies, and sophisticated risk management issues -- most of which are not that relevant in the banking and financial systems in emerging Asia.
In addition, it is very likely that the US and EU will lead most of the medium term actions set forth in the G20 Statement, such as those actions surrounding international financial standards (i.e., on accounting, capital, risk, etc.) and reform of the Bretton Woods institutions (i.e., the IMF and World Bank). At a more micro-level, many observers were looking for a turnaround in the stock markets after the G20 Summit, but this also clearly did not happen this week. According to data from Bloomberg, the markets in China (down 2.3 percent), Korea (down 6.9 percent), Indonesia (down 6.6 percent). Other major emerging markets in Asia, such as Malaysia, Philippines, and Thailand, also were all down sharply this week.
On balance, the G20 Summit was relevant for East Asia. It represented an important recognition of the importance of the Asian economies in the global financial system. The G20 Summit also generated momentum to make improvements in the financial sector in some of the most critical economies in Asia, as well as to improve preparedness for the growing impact of the global financial crisis in the region. However, we will have to wait for the next G20 meeting April 30 to see how much of the action plan is actually implemented.