Looks like the world is beginning to tire of our antics…
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U.S. plan hits opposition at G20, FX accord remote
U.S. Treasury Secretary Tim Geithner speaks during the first meeting of the financial stability oversight council to vote on a number of resolutions at the Treasury Department in Washington, October 1, 2010.
Credit: Reuters/Jason Reed
By Abhijit Neogy and Toni Vorobyova
GYEONGJU, South Korea | Thu Oct 21, 2010 11:06am EDT
GYEONGJU, South Korea (Reuters) – G20 officials are unlikely to reach an accord rejecting currency devaluations and capping current account balances, an informed source said on Thursday, after U.S. proposals ran into stiff opposition.
The swift rebuff of a U.S. call for numerical targets for “sustainable” trade surpluses and deficits underscored the difficulties facing Group of 20 finance ministers gathering in South Korea as they try to defuse tensions over currencies and economic imbalances.
The G20 source, who has direct knowledge of deliberations at the meeting, said the proposals had not found favor with India, China and other emerging economies, or even the likes of Germany, which has a large current account surplus.
In an interview with the Wall Street Journal, Treasury Secretary Timothy Geithner called for an agreement on exchange rate policy “norms”.
“Right now, there is no established sense of what’s fair,” he told the paper. “We would like countries to move toward a set of norms on exchange rate policy.”
Washington is also floating the idea of specific targets for current account balances. This would build on a G20 pledge a year ago to tilt growth away from exports in fast-growing surplus countries, such as China, and to boost savings in rich deficit economies, including the United States.
“We are exploring whether we can agree to commit to keep the external imbalances to levels that are more sustainable,” Geithner said.
The G20 source said the drafting of a communique would only begin late on Friday after a first round of meetings between finance ministers and central bank governors in Gyeongju.
“If the U.S. persists with that line, we will oppose it,” he said, adding that the final communique would make a rather “subdued” reference to currencies and current account balances.
French Economy Minister Christine Lagarde said coordination on currency policy was lacking and that Asia had a vital role to play. “We can see there are imbalances, that coordination is at times lacking on policy,” she said in Paris.
“LET’S ALL LIVE IN PEACE”
Diplomats said Washington was proposing that countries should aim to limit their surplus or deficit on the current account — the broadest measure of trade in goods and services — to 4 percent of gross domestic product.
But German Economy Minister Rainer Bruederle said he was opposed to numerical goals.
“Macroeconomic fine-tuning and quantitative targets are not the right approach in our view,” Bruederle told Reuters in Berlin before leaving for the G20 talks.
Russian deputy finance minister Dimitry Pankin was also skeptical about the U.S. initiative.
“The United States will try to put the question of exchange rates and current account balances at the top of the agenda, to try to press China to make some commitments on this issue. In my view it is unlikely that they will succeed,” Pankin said.
“Most likely, there will be some general words, along the lines of ‘let’s all live in peace’. I do not expect much success in this sphere,” he told reporters.
An Indian finance ministry official gave equally short shrift to Geithner’s idea of numerical goals.
“I do believe that this has to be looked at more fundamentally. By artificially linking current account deficit levels to the GDP you are merely skimming the surface. I am not sure that this will be supported by very many emerging economies,” the official told Reuters.
BLAME GAME
Pankin criticized Washington for piling pressure on emerging markets to lead a rebalancing when it was loose U.S. policy settings that were sending capital pouring into developing economies, generating pressure for their exchange rates to rise.
“We think that such policies will not come to any good,” he said. Things would not turn out well unless the United States cut its budget deficit and tightened monetary policy, he added.
His forthright remarks contrasted with the emollient note on exchange rates struck by Geithner, who hopes that, by preaching currency cooperation, he can coax China into allowing the value of the yuan to rise more quickly.
Major currencies were “roughly in alignment now”, Geithner told the Wall Street Journal.
The Treasury chief repeated his view that the yuan, also known as the renminbi, was significantly undervalued. But he said that would be corrected over time if the brisker pace of appreciation witnessed since September were sustained.
“If China knew that if it moved more rapidly, other emerging markets would move with them, it would be easier for them to move,” Geithner said.
Countries from Brazil to G20 host South Korea are loath to allow their exchange rates to rise for fear of losing competitiveness to China. For its part, Beijing is adamant that the yuan’s rate of climb must be gradual.
“If the renminbi exchange rate is not stable, companies will not be stable, employment will not be stable and society will not be stable,” the People’s Daily, the mouthpiece of the ruling Communist Party, said in an editorial on Thursday.
The task for finance ministers and central bank governors, at a two-day meeting starting on Friday, is to paper over such tensions so they do not mar a G20 summit next month in Seoul.
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