Asia-Pacific finance ministers pledged to work toward reining in large imbalances to safeguard growth at an APEC meeting yesterday, amid tension over US monetary policy and its economic proposals.
Finance chiefs from the 21--nation APEC group including the US, China and Japan met in Kyoto and adopted wording from last month’s G20 meeting to avoid “competitive devaluation of currencies.”
However, fault lines had emerged during the two-day meeting over a US proposal that countries assign a specific limit for their current account surpluses or deficits, amounting to a percentage of GDP.
Beijing on Friday rejected the plan, setting up a potential -showdown at next week’s G20 summit in Seoul. Yesterday’s APEC statement gave no mention of specific targets.
Such limits would force China, among others, to take steps to rein in its massive trade surplus, an issue at the center of tensions with the US over the strength of the yuan.
Southeast Asian nations also plan to raise their concerns over the proposal to target current account imbalances at next week’s G20 summit in South Korea, arguing that it could encourage trade protectionism.
Asian economies cite super-loose US monetary policy as a factor roiling currency markets, hammering the US dollar and prompting a wave of speculative money to pour into Asia and drive up regional currencies.
In a statement issued yesterday, the grouping warned of the risks posed by capital flows returning in “a significant volume” to emerging economies in the region, leading to higher volatility and asset prices.
Thai Finance Minister Korn Chatikavanij warned on Friday that the latest round of easing measures by the US Federal Reserve would likely lead to increased capital flows into Asia, amid complaints from Southeast Asia over “hot money.”
Pressure on the US dollar has increased after the US Federal Reserve this week announced US$600 billion in further easing measures to pump money into the US economy, a move rounded on by Asian countries including China.
The Fed’s announcement, which follows a similar round of -quantitative easing worth about US$1.5 trillion during the crisis, has stoked fears of a deluge of speculative cash into emerging markets by players seeking higher non-US dollar returns.
In its statement, APEC said that “the global economy is recovering from the recent financial crisis, but uncertainty remains.”
APEC said it would “pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels.”
It urged economies with deficits to take steps to boost savings and surplus nations to reduce their reliance on exports and undertake reforms to boost domestic demand, aiming to help rebalance the global economy.
“The need to correct external imbalances and to coordinate broad macroeconomic policies to achieve that end ... is our shared goal,” the meeting’s host, Japanese Finance Minister Yoshihiko Noda, told reporters yesterday.
Meanwhile, US Treasury Secretary Timothy Geithner yesterday said there was “broad consensus” to develop policy to avoid excessive current account imbalances threatening to derail a global economic recovery.
“We are trying to make sure as the world economy recovers ... we don’t see reemergence of the type of excess imbalances on the trade side, either surpluses or deficits that could ... threaten future financial stability,” Geithner said.
“On the exchange rate front, we are trying to build a framework of cooperation that could help defuse tension and defuse some of the pressures you are seeing across global markets,” he added at the end of an APEC meeting.
“I think there is a broad consensus among countries about the benefits of doing this multilateral framework,” he said.
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