G20 Finance Leaders Urge ‘Improved Fiscal Soundness’

Financial ministers and central bank chiefs of the Group of 20 economies held talks in Busan Friday on improving the financial soundness of certain countries in the wake of the fiscal crisis in southern Europe.

They will include the importance of fiscal soundness as a key element in their G20 communiqué.

Countries have failed to narrow their differences over a proposed bank tax, which has been considered a measure to cope with massive financial inflows and outflows. Hence the G20 financial chiefs reportedly agreed in principle that the financial community must repay what governments have pumped into the financial sector to overcome the economic crisis.

Finance ministers, central bank chiefs from G20 nations, and the heads of international organizations including the IMF started the two-day G20 Finance Ministers and Central Bank Governors Meeting with a luncheon forum on the world economy at Nurimaru APEC House.

○ Fiscal soundness seen as key issue

Presiding over the forum, South Korean Finance Minister Yoon Jeung-hyun said, “The world needs international collaboration, as fears linger including the fiscal crisis in southern Europe, while the global economy is on a recovery path.”

The participants were briefed by the IMF on the situation of the global economy, and hold a closed discussion session on cooperating in macroeconomic policy, including exit strategies.

The finance ministers, who held a meeting prior to the forum, agreed that the world economy is highly fragile, and the major lingering concern is fiscal soundness as evidenced by the crisis in southern Europe. Accordingly, they agreed to emphasize the importance of fiscal soundness in the second clause of their joint communiqué, including the explanation on the state of the world economy.

Countries disagreed to varying degrees, however, on how to introduce a bank tax, so how the tax will be handled in their communiqué remains uncertain. Upon arriving at Gimhae International Airport, Canadian Finance Minister James Flaherty, whose country will host the G20 meeting at the end of the month, told reporters, “Not only Canada but other countries are opposed to the introduction of a bank tax,” reiterating his objection to the tax.

The finance ministers will also discuss hedge funds and regulations in the over-the-counter derivative market and international credit rating agencies. European nations support this, while the U.S. is lukewarm.

At a conference hosted jointly by the preparatory committee for the G20 Seoul summit and the World Bank, committee chairman Sakong Il said in his keynote speech, “(Concerned parties) agreed to adopt a growth-focused development plan (for developing countries) in the agenda of the G20 summit.”

○ Tight security in Haeundae

Busan`s Haeundae district was heavily guarded by policemen and security officials in suits and ties Friday as if in a state of emergency. Metal detectors were installed at entrances and parking lots in major hotels, including the Westin Chosun Hotel, the venue of the finance ministers’ meeting.

Police were also deployed in waters as well. The Korea Coast Guard mobilized more than 10 speedboats in waters off Haeundae and remained on guard, controlling traffic of vessels passing by. Tight security was put in place to preempt surprise demonstrations by anti-G20 groups or anti-globalization civic groups. The Coast Guard mobilized more than 20 elite police squad officers and held undersea inspections to check for explosives installed underwater.

Finance ministers and central bank governors arrived in succession at the Westin Chosun Hotel from Friday morning. U.S. Treasury Secretary Timothy Geithner, who has visited China and Europe since May 24, directly flew into Busan via his official jet.

French Finance Minister Christine Lagarde appeared at the hotel in the recently launched SM5 passenger car of Renault Samsung with a French flag flying.

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