US stifled at G20 meet

In a letter to fellow finance ministers of the Group of 20 leading economies, US Treasury Secretary Timothy Geithner said countries should implement policies to reduce their current account imbalances below a specified share of national output.

Japanese Finance Minister Yoshihiko Noda said Geithner, backed by host South Korea, proposed limiting surpluses and deficits on the current account — the broadest measure of trade in goods and services — to four percent of gross domestic product.

But the plan met with a cool reception on the first day of a two-day meeting meant to smooth the path for a G-20 summit in Seoul on November 11 and 12. Big exporting countries that habitually run chunky trade surpluses led the opposition.

A G-20 source said China was against any limits on imbalances, German Economy Minister Rainer Bruederle warned of a throwback to “planned economy thinking”, and Russian Deputy Finance Minister Dmitry Pankin said a draft communique to be issued today would steer clear of numerical targets.

“The communique is very politically correct. There’s nothing sharp in it,” Pankin said.

Noda also voiced scepticism. “We doubt whether rigid numerical targets should be set. But when checking the progress in rectifying imbalances, that might be an idea,” he told reporters.

The criticism underscored the difficulties facing the G-20 as it strives to put the world economy on a more stable footing and defuse currency tensions that economists fear could trigger trade wars.

While the G-20 won praise for coordination of stimulus packages during the global financial crisis, its unity has been tested by low growth in rich countries and attempts by some emerging market economies to preserve export competitiveness by holding down their exchange rates.

Saudi Arabia, Germany and Russia are the G-20 members with the biggest current account surpluses, but China is the chief culprit in Washington’s eyes — and the unspoken target of Geithner’s letter — because of massive currency market intervention to keep a lid on the yuan.

G-20 countries, Geithner said, “should commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing the appreciation of an undervalued currency.”

Chinese officials made no public comment, but a G-20 source said Beijing was opposed to any communique that explicitly bound countries to limits on current account balances or any other form of rules on currency policy.

“Positions are still very much divided. It’s a rift down the middle on both issues,” the source said, predicting “bland” language in the closing communique to paper over the cracks.

Not everyone rejected the US gambit out of hand.

“At a time when people are talking about currency wars, the merit of Geithner’s proposal is that it shifts the discussion back to the macroeconomic framework,” a French official said.

“We must demonstrate that we can, in the immediate term, cooperate to avert what many are now terming a currency war. We must find a solution to this by the Seoul summit,” Indian Finance Minister Pranab Mukherjee said.