Friday, November 12, 2010

G-20 agrees to make current account guidelines by next June

via Yonhap, Seoul, Korea
Leaders of the world's 20 major economies agreed Friday to formulate "indicative guidelines" for current account imbalances by the first half of next year, paving the way for defusing one of the most contentious issues facing the global economy.

The President of Korea
Credit: Yonhap NA
The world leaders also agreed to seek more market-determined exchange rate systems, enhance exchange rate flexibility and refrain from competitive devaluation of currencies as they wrapped up two days of summit talks in Seoul, the first G-20 summit in Asia.
Should the agreement be "implemented as agreed, it will contribute greatly to preventing a future global economic crisis. We all have to cooperate for this," South Korean President Lee Myung-bak said at a press conference at COEX in southern Seoul.
It was the fifth meeting of the G-20 leaders since they first met in late 2008 to discuss joint responses to the crisis that was rocking the world economy at the time. The G-20, which includes major industrialized and emerging nations, accounts for about 85 percent of the global economy.
This week's summit came amid a currency row between the United States and China as Washington has mounted pressure on Beijing to stop keeping its currency, the yuan, artificially low, which makes Chinese goods cheaper. The U.S. claims the Chinese currency policy has worsened global trade and current account imbalances.
Complicating the dispute was the Federal Reserve's move to inject $600 billion into the U.S. economy to lower long-term interest rates in an effort to spur growth. The move has raised the eyebrows of some countries, including China, Germany and Brazil, which believe lower U.S. interest rates will lead to the values of their currencies rising and hurt their exports.
In an attempt to resolve the disputes, the G-20 countries discussed limiting current account surpluses or deficits for balanced growth. But differences were too wide to produce a specific deal on how to limit imbalances, and the countries settled for agreeing to formulate "indicative guidelines" by the first half of 2011.
"These indicative guidelines composed of a range of indicators would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken," the summit declaration said.
South Korean President Lee hailed the agreement as "remarkable progress."
"For now, in conclusion, (the world) is out of the so-called currency war," he told the conference.
U.S. President Barack Obama welcomed the agreement, saying that the world's 20 major economies are "in broad agreement on the way forward."
But Obama increased pressure on China, urging the country to raise the yuan's value.
"The issue of China's RMB is 'irritant' not only to us, but also to a lot of China's trading partners," he said at a press conference.
Other agreements reached at the summit include modernizing the International Monetary Fund, strengthening global financial safety nets and pledging to help and work together with low-income nations for balanced and shared growth.
The global financial safety net and development issues are known as "Korea Initiative" as South Korea pushed for them as chair of the summit, building on its experience of the 1997-98 Asian financial crisis that forced Seoul to seek a humiliating bailout fund, and its rise from the ashes of the Korean War to one of the world's largest economies.
The endorsement of the Korea Initiative by the G-20 leaders highlighted Seoul's role as a bridge between developed and emerging nations as it had to convince the G-20 and other developed nations why they should agree to relatively reduced coverage from the IMF.
On balanced development, South Korea helped identify nine key issues ranging from infrastructure and human resources development to trade, food security and job creation to help low-income nations. The G-20 leaders at the Seoul summit wholly approved the development agenda.
"We will continue to monitor and assess ongoing implementation of the commitments made today and in the past in a transparent and objective way," the leaders said in the declaration. "We hold ourselves accountable. What we promise, we will deliver."
The leaders also said that the "actions agreed upon today will help to further strengthen the global economy, accelerate job creation, ensure more stable financial markets, narrow the development gap and promote broadly shared growth beyond crisis."
In the run-up to the summit, vice finance ministers and personal representatives of the leaders, dubbed the "Sherpa" group, haggled for days over the current account guideline proposal, underscoring the difficulty of dealing with the sensitive issue.
After South Korean President Lee urged other leaders to make concessions at their working dinner Thursday night, envoys from the 20 members resumed the stalled negotiations later that night and had intensive discussions that went into early Friday morning.
On the sidelines of the G-20 meeting, South Korea had a series of high-stakes bilateral summits with the U.S. to discuss a pending free trade agreement (FTA), and with France to seek the return of ancient Korean royal texts seized in the 19th century.
Both Seoul and Washington had hoped to reach a final agreement on their FTA deal signed more than three years ago this week, but the last-minute negotiations broke off over U.S. demands for more concessions on auto and beef issues.
Obama said Friday that he is not interested in reaching a deal for the sake of "announcement" and that an agreement should be good for both sides, adding that he believes the two countries can reach a "win-win" agreement in the near future.
South Korea, however, produced progress in talks with France over the royal texts.
French President Nicolas Sarkozy said Friday his government will return Korean royal Uigwe books to Seoul on a five-year renewable lease scheme, after Seoul has sought the books' return for decades.
"I believe the time has come to settle this," Sarkozy told reporters. "I know that for Koreans, these documents are very much a part of Korean heritage."
The Uigwe books from the Joseon Dynasty (1392-1910) were looted by French troops in 1866 when they invaded a Korean island in retaliation against its persecution of French Catholic missionaries.
The summit brought together about 4,000 officials from the 20 member economies, including such top leaders as Obama, Chinese President Hu Jintao, Japanese Prime Minister Naoto Kan and Russian President Dmitry Medvedev.
In addition, the leaders of Spain and four other invited nations as well as top representatives of the U.N. and other international organizations attended the summit.