Leaders of the G20 group of major
economies have agreed to avoid “competitive devaluation” of currencies after
talks concluded in the South Korean capital, Seoul.
Leaders agreed to come up with
“indicative guidelines” to tackle trade imbalances affecting world growth.
Tensions had been high between some
delegations over how to correct distortions in currency and trade.
But the agreement fell short of a US
push to limit trade deficits.
Some fear the conflict, chiefly between
China and the US, may threaten global growth.
US President Barack Obama said there
should be no controversy about fixing imbalances “that helped to contribute to
the crisis that we just went through”.
“Exchange rates must reflect economic
realities,” he said.
“Emerging economies need to allow for
currencies that are market-driven. This is something that I raised with
President Hu of China and we will closely watch the appreciation of China’s
currency.”
‘Slowly, slowly’
Some of what the G20 agreed had already
been done by their finance ministers – the commitment to refrain from
competitive devaluations, for example. The summit did not manage to harden that
up, as had been suggested, with a promise to avoid competitive undervaluation.
That would have put more pressure on.
On the related issue of global
imbalances, which is partly about international trade, they agreed to develop
indicators to show when imbalances need to be reduced. That work is due next
year.
It is progress but slow, rather like
China’s commitment to move to a market-based exchange rate. They say they will
do it, but in their own time, in other words not tomorrow. So there was no
breakthrough in these key areas, but the very public endorsement of political
leaders perhaps gives a little more weight to such commitments as they have
made.
Washington says that China’s currency,
the yuan, is artificially weak and gives Chinese exporters an unfair advantage
as well as leading to Beijing amassing huge foreign reserves.
However, Chinese officials argue that
Beijing has an “unswerving” commitment to reform its currency regime, but that
global economic stability is needed to achieve it.
UK Prime Minister David Cameron said
progress was being made on the issue of imbalances.
“Slowly, slowly China is moving into a
position of actually increasing domestic consumption, rebalancing its economy,”
he said.
However, the agreement to develop new
guidelines to prevent so-called “currency wars” fell well short of the 4 per
cent limit on national trade deficits and surpluses proposed by the US, which
had been blocked by China and Germany – the world’s two largest exporters.
“This was never going to be solved
overnight,” Mr Cameron added.
And South Korea President Lee Myung-Bak
admitted that “on the foreign exchange rate issue, principles were agreed at
the finance ministers’ meeting, but there was no word on when and up to how
much we will implement them”.
‘Fractious’ negotiations
The G20 leaders also gave their backing
to reforms designed to give emerging economies such as China a bigger say in
the International Monetary Fund.
In their communique, leaders said they
were delivering “a modernised IMF that better reflects the changes in the world
economy through greater representation of dynamic emerging markets and
developing countries”.
UK sources say that officials from the
UK, France and Russia had to be called in the early hours of this morning after
“fractious” negotiations between China and the US broke down in “acrimony”.
But at the end of the summit, the
European Union said in a statement that it was “satisfied” with the outcome.
The G20 also committed itself to
completing soon the long-running Doha Development Round of global trade talks,
saying that 2011 presented a “critical window of opportunity, albeit narrow” to
conclude the discussions.
And it signed the Seoul Development
Consensus for Shared Growth, committing it to work in partnership with other
developing countries on trade, development and investment.
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