44th Asian Development Bank Conference in Hanoi

Senior finance officials from Korea, China and Japan concurred on May 4th, 2011, to intensify cooperation to hamper financial crises in Asia. In addition, the three Northeast Asian countries assented to the Association of Southeast Asian Nations to examine the practice of local currencies for regional trade settlements.

             During discussions at the annual meeting of the Asian Development Bank in Hanoi, the three finance ministers mentioned they helped enhancing the regional financial security net under the Chiang Mai Initiative Multilateralism program. The CMIM presents a pool of funds which can be tapped through currency swap deals. It started in March 2010 as ASEAN and the Northeast Asia countries, the so-called Asean+3 group, agreed to set aside $120 billion to inhibit financial chaos in Asia.

   
   

The CMIM set up a structure to yield liquidity to nations that are feeling misery from a financial crisis and the three Northeast Asian countries agreed on the urgency for it to be utilized pre-emotively when there are symbols of a awaiting crisis. However, the ministers said the details need to be ironed out at the working level. The finance ministers agreed to pursue cooperation with the International Monetary Fund to explore ways to provide pre-emptive emergency liquidity to a country that appears to be slipping into a financial crisis. A finance ministry official said the fact that the ministers from all three countries have agreed in principle on preventive measures was significant. Demand has been growing for the role of CMIM to be expanded to crisis prevention as member nations currently can ask for its help only when financial turmoil unfolds.

             Finance Minister Yoon highlighted the prestige of confirming a dialogue channel with the IMF for developed cooperation, while attempting to double the amount of CMIM funds in the future. Regarding the possibility of employing local currencies for regional trade settlement, the Japanese finance minister mentioned this does not tell that Asia has lost self-possession in the U.S. dollar but, he indicated, using local currencies for trade settlements was more suitable. He also said that the matter is currently being delivered at the G20 and that the issue requires more research at the level. Indonesia’s finance minister, co-chaired the meeting, pointed out that the purpose of local currency practice is to inspire the increase of trade volume in the Asia-Pacific region.

The finance officials also assented to manage a study to demonstrate what they called the “regional settlement intermediary” as part of ongoing efforts to expand the Asian Bond Markets Initiative. The RSI is created to show settlement services for cross-border bond negotiation in the region. Analysts express that Asian bond markets are underdeveloped compared to those in the West. They also stated help for the start of the ASEAN+3 Macroeconomic and Research Office (AMRO), an agency to observe the financial situation in member countries and regulate the amount of bilateral currency swaps, if needed. China will lead the agency in the first year and Japan will then do it for two years.

The three ministers also talked about up-to-date inflationary force in Asia. The ministers said the current global inflationary pressure is distinct since it is induced by a deficiency of supply rather than ascending demand. They said they have asked for oil-producing nations to enlarge production. They also partially blamed market speculators, who utilize financial derivative products, for driving up oil prices.

JiMin Park / parkjm0718@naver.com

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Meeting of Finance Ministers and Central Bank Governors in Paris

 

                                                                                                  

The G20 Finance Ministers and Central Bank Governors met in Paris on the 18th and 19th of February 2011. The main topic was to address ongoing economic and financial difficulties and to concur on a way forward to achieve the orders given. The ministers and governors have confirmed their commitment to manage policy action by all G20 members to accomplish powerful, sustainable and balanced development. Main priority actions involve carrying out fair term fiscal consolidation proposals modified according to national circumstances in line with Toronto commitment, searching for pertinent monetary policy, improving exchange rate flexibility to better reveal economic fundamentals and structural improvements, to assist global demand, enlarge potential growth, develop job creation and contribute to global rebalancing. Also, discussed progress made since the Seoul Summit and showed the need to diminish excessive imbalances and carry on present account stability at sustainable levels by intensifying multilateral cooperation.

               The leaders agreed on a set of measures that will allow us to focus, through an integrated two-step process, on those persistently huge imbalances which need policy actions. In order to complete the mandatory work for the basic step, their aim is to agree, by following meeting in April, on indicative guidelines against which each of these indicators will be evaluated, acknowledging the demand to take into account national or regional circumstances, including large supply producers. While not aims, these indicative guidelines will be employed to assess the following indicators: (i) public debt and fiscal deficits; and private savings rate and private debt (ii) and the external imbalance organized of the trade balance and net investment income flows and transfers, taking due deliberation of exchange rate, fiscal, monetary and other policies. Adopting a schedule for developing the 2011 action plan that will implement for Framework for Strong, Sustainable and Balanced Growth and look over the commitments that are already made, is another consent they reached. As approved in Seoul, IMF has been called on to distribute an assessment as part of the Mutual Assessment Process on development towards external sustainability and consistency of policies at the October meeting. At the moment, the leaders would make sure to review a report on the MAP including an action plan knowledgeable according to the examination on the root causes of continuously large imbalances based on the agreed guidelines.

                                 The leaders and governors at the meeting are looking forward to the completion by the next Leaders’ Summit of the following ongoing work on systemically important financial institutions as arranged in the FSB work program for 2011. For example, resolution of Global-systemically important financial institutions by FSB and national authorities based upon indicative standard; useful resolution scope including in a cross-border context; capital surcharges, contingent capital and bail-in instruments; and other supplementary requirements as determined by the national authorities including systemic levies. Once the frame initially applicable to G-SIFIs is agreed, the G20 Finance Ministers and Central Bank Governors will move promptly to cover all SIFIs. The 2 reports should be finalized by the BIS, IMF and FSB on macro-prudential frameworks and by the FSB, IMF and World Bank with input of national powers on financial stability matters in emerging market and developing economies by our October meeting. Not only that but also, the recommendations that the FSB will prepare by mid-2011 on regulation and oversight of the shadow banking system to efficiently address the risks, notably of arbitrage, associated with shadow banking and its interactions with the regulated banking system should be good to go. They also decided to call on the OECD, the FSB and other relevant international organizations to develop common principles on consumer protection in the field of financial services by our October meeting as well.

               The Group of 20 finance ministers and central bank governors meeting surely ended with a compromise on which major economic indicators to include in the “indicative guidelines.” A communiqué was released by setting their goal for the next meeting in April to agree on the guidelines being used to evaluate any indicators; public debt, fiscal deficits, and the private savings rate.

JiMin Park (parkjm0718@naver.com)

Looking back to the G20 Seoul Summit and forward to the 2011 G20 Summit

         The 2010 G-20 Seoul Summit was the fifth meeting of the G-20 heads of government, to discuss the global financial system and the world economy, which took place in Seoul, South Korea, on November 11-12, 2010. Specifically, the major topics were ensuring global economic recovery, framework for strong, sustainable, and balanced global growth, strengthening the international financial regulatory system, modernizing the international financial institutions, global financial safety nets, development issues and the risk of a currency war.

 

 

 

 

Main accomplishments of G20 Seoul Summit

  1. The G20 Seoul Summit has confirmed the 6-percent shift of quota shares to emerging economies in the International Monetary Fund, according to the joint communiqué issued after the end of the summit. The communiqué also said greater representation for emerging economies at the IMF Executive Board through two fewer advanced European chairs, and the possibility of a second alternate for all multi-country constituencies.
  2. The G20 leaders agreed on a standstill on trade and investment restrictions to avoid protectionism, and the Korea Initiative, which addresses a global financial safety net and development issues. They also reaffirmed political will for an early settlement of the DDA (Doha Development Agenda), preventing all forms of protectionism and expand trade liberalization in order to promptly bring the DDA to a successful and balanced conclusion.
  3. The leaders endorsed the Financial Stability Board’s (FSB) policy framework for reducing the moral hazard of systemically important financial institutions (SIFIs), including the work processes and timelines set out in the report submitted to the Summit. Specifically, G20 leaders agreed to endorse the FSB’s policy recommendations, prepared in consultation with the IMF, on increasing supervisory intensity and effectiveness. They also endorsed its recommendations for implementing OTC derivatives markets reforms, and principles for reducing reliance on external credit ratings.
  4. The G20 leaders welcomed the creation of a Flexible Credit Line (FCL) and Precautionary Credit Line (PCL) as new preventative tools to cope with future crisis. Countries with strong fundamentals and policies will have access to a refined FCL with enhanced predictability and effectiveness. Moreover, the PCL will allow countries with sound fundamentals and policies, but moderate vulnerabilities, to benefit from the IMF’s precautionary liquidity provision.
  5. G20 Summit used to be an inter-country dialogue; however, G20 Seoul Summit became a premier forum for global economical coordination by adding the private forum for global economical coordination by adding the private channel to it. The business summit in fact introduced a new model where the government and private sector cooperate on a global level.
  6. The leaders reiterate their commitments to completing an ambitious replenishment for the concessional lending facilities of the MDBs, especially the International Development Association, to help ensure that LICs have access to sufficient concessional resources.

 

Significance of G20 Seoul Summit

                          Due to the differences in the speed and extent of economic recovery among the G20 member countries, the sense of urgency once they shared has evaporated and spirit of cooperation have been significantly weakened when compared with the time during the 1st Washington Summit, which was held in 2008. G20 Seoul Summit sure became a turning point for building a new management system for the world economy in the coming future. Especially, the conflict between the U.S. and China over the value of the yuan has been escalating notably and a number of key countries have diverged in their positions on the G20’s core issues, which have given enough burdens for Korea in its efforts to generate fruitful outcomes from the Summit. The G20 Seoul Summit, so far, became a turning point for building a new management system for the world in the coming future. Korea’s effort to the development in the G20 deliberations has been recognized by the world, taking a step forward with leadership. G20 Seoul Summit will become one of most important parts of future summit meetings.

                     2011 is the year of France’s presidency of G20. The goal for this year set by the group’s leaders at last year’s summit in Seoul is to reach agreement in the first half of 2011 on a list of “indicative guidelines” for quantifying imbalances to prevent a repeat of the global economic crisis. In addition, France has more priorities for the year: firstly, to agree on tougher regulation to curb volatility in food and fuel prices and here come the antagonisms between the nations who produce and export commodities and those who seem to the biggest consumers of commodities. Secondly, to negotiate the inclusion of China’s yuan in the basket of currencies underpinning the IMF’s Special Drawing Rights. Not only that, development, innovative financing, and employment and social issues are major topics need to be discussed. France has expressed strong willingness to follow in the footsteps of Korea in hosting the G20 Business Summit.

JiMin Park (parkjm0718@naver.com)

The FSB Conference of Financial Reform in Seoul

The importance of FSB conference in Seoul

It is significant that the FSB conference was held in Seoul, because it is the first meeting in the emerging country. Korea dealt with Asian financial crisis in 1997, and managed the global financial crisis in 2008 efficiently. In addition, member states expect that Korea will have the leading role in the financial reform as a chairman country of G20.

Topics come up for discussion by Korea

Korea selected items for an agenda mainly from the perspective of the chair position of G20 and emerging country. As chair position of G20, Korea focused on the agreement of several topics related to the financial regulation among member states. Furthermore, as an emerging country, Korea poses a question regarding the importance of global safety net.

There are several issues suggested by Korea. The global SIFI would be separated from the domestic SIFI, leading to the heavy regulation. In order to increase the participation of emerging states, it is necessary to share the information between the home and host country. In terms of the establishment of IFRS and the dependence on the credit agency, the opinion of emerging states should be included.

The results of the FSB conference

1.      The regulation on the asset of banking industry

After the global financial crisis in 2008, the banking industry would extensively recover. Thus, the liquidity risks should be prepared. At Sep. 12, each country reached to the agreement of calibration and phase-in arrangement in BCBS meeting. The asset regulation will be implemented in 2013, and the degree of regulation will be gradually increased until 2018.

 

2.      The heavy regulation on SIFI

The real economy in the large number of countries is affected by SIFI. This is why the liquidation of the huge SIFI is difficult. Instead of that the public funds will be provided. This might lead to the moral hazard in financial sector. Thus, the resolution would be the higher loss absorption capacity. It should be implemented in global SIFI first. Due to the huge impact on many institutes and even whole country, it is essential for SIFI to have the capacity of liquidation. On top of that, other regulation should concentrate on lower the possibility of failure base on the intensity of SIFI supervision. Peer review council will confirm the consistency and effectiveness in SIFI supervision.  

 

3.      The standardization and transparency of derivatives traded through over-the-counter

The weak regulation on OTC derivative market leads to the severe financial crisis in 2008. The central clearing with standardized derivatives is encouraged. In addition, the regulation on the central counterparties will be increased.

 

4.      The decrease in the dependence on the credit agencies

The FSB approved the principles regarding the decrease in the dependence on credit agencies. Accordingly, legal codes should not be based on the rating given by credit agencies. The credit rating conducted by banks, institutional investors and market participants will be encouraged.

 

5.      FSB outreach program

The FSB encourage the participation of member states and non-member states by setting up the regional groups. This leads to the active implementation of global regulation. The outreach program will be specified with extra discussion.

The summary and expected effect of financial reform in FSB conference

The financial reform will contribute to the recovery of financial system. The regulation on the soundness of banking industry will result in the higher loss absorption capacity with superior financial structure. The heavy supervision on SIFI will lead to decrease the problems of moral hazard caused by too-big-to-fail. The transparency in the OTC derivative market, which is one of the causes of financial crisis, will be improved. Lastly, the real economy will have the positive impact regarding sustainable growth, thanks to the stability in financial system.

Min Gyo Jeong (misomk@naver.com)

One great leap for Korea: the G-20 Seoul Summit

 

   The G-20 is the premier forum for our international economic cooperation that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. By contributing to the strengthening of the international financial system and providing opportunities for dialogue on national policies, international cooperation, and international financial institutions, the G-20 helps to support growth and development across the globe.

  Korea is the first country which holds the G-20 Summit among Asian countries. It’s attributed in part to the fact that Korea has successfully overcome the latest crisis. At ‘the G-20 Seoul Summit’ held in November 2010, a statement about ‘Sustainable and balanced growth’ is to be issued. Specific plans on reforming IMF and establishing financial safety nets will be also discussed. As a chair of the G-20 this year, Korea needs to seize the chance to internationally enhance its position and demonstrate its leadership to other countries.

 

What does Korea want to achieve through the 2010 G-20 Summit ?

 The Korean economy used to be undervalued in the global market due to the so-called ‘Korea discount’ effect. Now, as a chairing country of the G-20, Korea plans to raise its profile on the global stage and turn the ‘Korea discount’ effect into ‘Korea premium’ one. To support this goal, the Financial Services Commission (FSC) has five action plans.

1. Supporting successful hosting of the G-20 Summit

  As a chair and host of the 2010 G-20 summit, Korea’s role will play an important role in bridging the gap between the advanced and emerging economies. To this end, Korea is more actively participating in global discussions on various issues and taking a leading role in international bodies such as the Financial Stability Board (FSB). The FSC also supports the ‘Presidential Committee for the G-20 Summit’ to select items for agenda and resolve differences among the countries. Especially, the FSC is making effort to build constant channels of communication among the financial authorities in Asian countries to gather opinions about financial agenda.

2. Fostering distinctive financial center

  The FSC has plan to create specialized financial centers in Yeouido, Seoul and Moonhyun, Pusan. Under this plan, the FSC formed consultative groups with local governments and is working on detailed plans for implementation. It is also in the process of improving business environment to attract more foreign financial institutions. As part of this effort, the FSC and the FSS are issuing Financial Investor Express Cards for foreign financial investors who meet certain requirements to make their immigration process much more convenient. The FSC is also working on nurturing and attracting financial experts.

3. Pushing ahead a globalization of Korea’s finance system

  Efforts to globalize Korea’s financial system are being made in two ways: exporting finance systems and attracting foreign companies. Exporting Korea’s financial infrastructure to developing countries can improve efficiency, accuracy, and transparency in financial transactions. Korea’s advanced IT technology can contribute a lot to establishing financial infrastructure in developing countries. The FSC is also supporting domestic financial institutions to go abroad and expand their business activities so that Korea can have more influence in the global financial market.

4. Improving transparency in finance

  Transparency is an important factor to determine the development of a country’s financial system. Korea’s financial authority reformed the systems related to Anti-Money Laundering Laws and System to improve it. Moreover, To increase its international role in anti-money laundering area, as a full member of Financial Action Task Force (FATF) and chair country of the G-20 Summit, the FSC is building a bridge between these two organizations to strengthen its position in the world. It also extends technical support for developing countries. In this regard, according to the request of Asia-Pacific Group on Money Laundering (APG), the FSC decided to help the Mongolia government improve its Anti-Money Laundering System.

5. Enhancing the financial supervisory services

  Equipped with a well-developed system, the FSC is working on improving its financial supervisory practices. To this end, the FSC invited external experts to create an advisory committee and to make an unbiased and objective assessment about its supervisory activities. It also strives to build a cooperation system among individual sectors to provide a more consistent and comprehensive supervisory approach.

 

  With all these efforts, Korea will take initiative in global coordination. Korea will make effort to calibrate the interests of G-20 countries in a well-balanced manner. Diplomatic leadership also needs to be shown to engage non-G20 countries into discussion. For Korea, ‘the G-20 Seoul Summit’ is a valuable chance to show the global community its leadership. Let’s hope its efforts will be crowned with success.

 

Chang-bum Choi

(incrowd@naver.com)

 

 

 

Korea, a New Member of FATF

In order to effectively deal with Money-Laundering, the FATF was established attendant upon the consensus at G7 Summit in 1989. Furthermore, the consolidated role of the FATF was required to strengthen the transparency of global financial market and cut down on the risk of Money Laundering at the last G20 Summit. That is to say, international society agreed on sorting out and seeking the sanction against Non-Cooperative Jurisdiction, who does not implement the global standard regarding Terrorist-Financing and distract the transparency of the financial market.  

The FATF consists of 35 countries (33 countries and 2 international organizations) with OECD (Organization for Economic Cooperation and Development) members as the core. However, among 30 OECD members, 4 countries including Poland, Hungary, the Czech Republic, and Slovakia are not joining into the FATF. Nevertheless, as we can see, the FATF includes most of the countries around the globe which promise to actively support and participate in the global efforts on AML. To be brief,  it reflects the international society recognizes the significance of the role of Anti-Money Laundering.   

 

the FATF carries out the 3 main roles. The first is Anti-Money Laundering and the creation of the blocking global network. The second is the study on the method of Money Laundering and development of its countermeasure. At last, there is the enactment and legislation of the related international regulations and institution.   

 

Korea joining the FATF, Why is it significant?  

Korea has been admitted as a full member into the FATF(Financial Action Task Fore) during the FATF plenary meeting in Paris from October 14 to 16,2009. This has several significant implications. Above all, there is the increasing necessity of Anti-Money Laundering system. The four major reasons for Korea in joining the FATF are (1) The improvement of the credibility of financial institution, (2) The efficient regulation against a criminal act, (3) The prevention of side effect triggered by liberalization measure of foreign exchange, (4) The affirmative participation to the global effort for counter-terrorist financing. It will also bring positive aftermath to the improvement of overseas credibility and the global authorization acquisition concerning domestic factors including institution. It will not merely contribute to the enlargement of the role of Korea within the FATF as the chair country of the next G20 summit on November, 2010, but strengthen the global representative status within Asia.  Due to the fact that the issue of money laundering or terrorist financing was one of the main agenda of the last G20 summit. Korea needs to actively participate in not merely Asia-Pacific related activities, but the broader global efforts as the chair of the next G20 summit in 2010 as mentioned previously. Furthermore, Korea is required to enlarge the participation in the FATF working group. Eventually, the diverse efforts and its role for AML/counter-terrorist financing should not be restricted within the scope of counter-terrorism and crime.

FSC Press Release_January 10th

The 3rd FSB Plenary Meeting Report

The FSC Chairman Chin Dong-Soo attended the 3rd FSB Plenary Meeting in Basel, Switzerland, on Saturday January 9. Chairman Chin checked how financial reform recommendations the G20 leaders mandated the FSB to make have been implemented and reaffirmed future directions and implementation schedules for financial reforms that will be taken by the FSB in 2010.       CLICK HERE