Wednesday, November 10, 2010

G-20 Seoul Declaration to call for more effort to resolve currency row

by Lee Joon-seung

via Yonhap NA, Seoul, Korea

The Group of 20 countries are expected to call for a resolution to the currency row before France hosts the next global economic leaders meeting in late 2011, government sources said Thursday.

The local summit preparation committee said the Seoul Declaration, to be announced Friday at the conclusion of the two-day gathering, is expected to fully endorse the Gyeongju communique agreed upon by finance ministers from the G-20 countries last month, although it is not expected to elaborate on a clear solution to the dispute.

The finance ministers reached an understanding to move toward a more market-determined exchange system that reflects underlying economic fundamentals and to refrain from competitive devaluation of currencies. They said countries should pursue a full range of policies conducive to reducing excessive imbalances to sustainable levels.

The communique also agreed that advanced countries will be vigilant against excess volatility and disorderly movements of exchange rates in order to help mitigate the risks facing some emerging economies.

Summit organizers said that while talks had been held to consider placing a cap on current account imbalances detrimental to sustainable growth, opposition has made it hard to reach consensus so that it can be reflected in the final statement. The United States, supported by South Korea, called for a numerical limit but the move ran into opposition from countries such as China, Japan and Germany.

"Because of the present opposition, leaders from the 20 largest economies may agree on a compromise that calls for a resolution to the standoff before the next G-20 meeting takes place," said a source who declined to be identified. He pointed out that France has already expressed a willingness to tackle the critical agenda to preempt the possibility of a full-fledged trade war from erupting.

The official said that before a viable solution is reached next year, countries could be asked to announce a detailed action plan with the International Monetary Fund (IMF) to review feasibility and set up an early warning system to check for excessive imbalances.

In addition, the Seoul Declaration may make recommendations to reduce imbalances for both countries that maintain large current account surpluses and those with chronic deficits.

"A so-called Seoul Action Plan that could recommend country-specific currency and current account policies, may be included in the statement at the conclusion of the summit," the official said.

Related to the move to set future goals instead of concluding the matter in Seoul, Sakong Il, head of the preparation committee, said Tuesday that reaching an accord on when to start or conclude talks on resolving the imbalance issue should be seen as a significant achievement in itself.

In addition to the currency standoff that has received considerable media attention, local organizers said the G-20 leaders will support the Korea Initiative that combines the establishment of a global financial safety net with the issue of balanced development.

Other measures to be included in the declaration are universal calls for a "standstill" on all forms of protectionist measures that can affect trade, and support for the decision to carry out reforms in the IMF as well as new financial sector restrictions as outlined by the Basel III requirement reached in September.

Seoul, as chair of this year's summit, is also pushing to incorporate a pledge by G-20 members to expand support for developing countries and fuel a drive to fight corruption that has been cited for holding up progress in the world's poorest countries.