By President Lee Myung-bak and Australian Prime Minister Kevin Rudd

Confronted by a financial and economic shock unmatched in the postwar era, leaders of the Group of 20 have been united in their commitment to take all necessary action to restore global growth. To date, the fiscal, monetary and financial policy response across the G20 countries has been unprecedented – amounting to the largest global stimulus the world has seen.

Signs of renewed stability in global financial markets confirm that the G20 policy measures put in to place are working. China, South Korea and other Asian countries are leading the way, while in June France, Japan and Germany recorded their first quarter of growth since early 2008.

While such positive news has helped restore confidence, a global recovery is not assured. This is no time to be complacent. The world faces several new challenges that will require leadership from the G20.

The first is to follow through on existing commitments. In many countries, much of the announced fiscal stimulus is yet to be delivered. There is more work to do to implement G20 commitments to reform financial systems, modernise and resource the international financial institutions and support developing countries.

The second global economic challenge is to manage the transition from crisis to recovery. While the extraordinary fiscal, monetary and financial policiesimplemented during the crisis have been necessary to support growth, governments will be required to execute a significant shift in policy settings as growth gradually returns or risk further damage to fiscal positions and a return of inflation.

In the late 1930s, exit strategies were poorly managed, with fiscal and monetary policies undermining recovery and leading to a double-dip recession in many countries. This time it is important that we get it right.

Unwinding the policies of the crisis will involve complex challenges of timing, co-ordination and credibility. The G20 needs to lead the process of communicating a transparent and clear way forward on the unwinding of fiscal, monetary and financial interventions, including bank guarantees. It can also play a role by facilitating international agreements on shared principles and implementing a global monitoring and “peer review” process.

The transition towards more balanced global growth is the third major challenge. Meeting it will require both co-operation and flexibility from the G20. Flexibility, because each country will have its own national trajectory towards sustainable growth. Co-operation, because the crisis has taught us that national macroeconomic strategies developed in isolation can lead to dangerous imbalances.

Developing a flexible framework for co-ordinated macroeconomic policy will be a central challenge for the G20. The Pittsburgh summit later this month is an opportunity for G20 leaders to launch a process to guide the global transition. At Pittsburgh, G20 leaders should agree to a three-stage process. First, national governments should develop their own national strategies for recovery. Second, they should agree to deliver these strategies to the International Monetary Fund before the end of the year and ask the IMF to report back on their consistency with balanced and sustained global growth. Third, G20 leaders should meet again in 2010 (when South Korea is the chair of the G20) to agree their responsibilities and actions to achieve this goal within the framework of post-crisis global economic management.

This process should be consistent with, and an important input to, the development of a global framework of principles such as the current proposal from Germany for a charter for sustainable economic activity. It would also recognise that there is no one-size-fits-all approach. Each country must find its own development strategy tailored to its unique economic circumstances. But these strategies must be consistent and together they must be compatible with balanced global growth.

Australia and South Korea are committed to work together and with other countries to develop and implement effective strategies at Pittsburgh and beyond to ensure that the recovery is sustained and economic and financial stability are maintained. As open and dynamic economies, we know that our own prosperity depends on strong global economic growth and stability.