Rancorous debate over global economic imbalances and currency strains dogged the G20 as world leaders gathered for a summit in Seoul yesterday despite US efforts to shore up the group’s unity.
US President Barack Obama voiced confidence that officials would agree on steps for more balanced and sustainable global growth, but members said the most likely outcome was a “lowest common denominator” deal on broad economic cooperation.
Struggling to recapture the unity forged in the throes of the global economic crisis two years ago, the G20 club of rich and emerging economies had hoped to use the summit to soothe tensions over foreign exchange rates generated by imbalances between cash-rich exporting nations and debt-burdened importers.
However, behind the scenes, negotiators squabbled over the language in a closing statement to be issued at the summit’s conclusion today. The final version may not venture far beyond agreements reached by G20 finance ministers last month, yet it was still proving difficult to agree on the wording.
“The G20 has prevented the boat from sinking, we have picked up speed, but not all engines are working on full power. The G20 must show that it is indeed the premier forum for global economic cooperation,” European Commission President Jose Manuel Barroso said.
A major irritant in the run-up to the meeting was the US Federal Reserve’s bond-buying spree to revive the economy. Former Fed chairman Alan Greenspan stirred that pot, saying the US was pursuing a policy of weakening the dollar.
“The US will never do that,” US Treasury Secretary Timothy Geithner shot back a few hours later in an interview with CNBC. “We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy.”
Nevertheless, Russia said it was “especially worried by attempts by a number of countries to take unilateral decisions to weaken their currencies” to stimulate growth.
“We believe that such steps lead to nervousness among market players and volatility of main currencies, prompting fears of global currency wars,” a source with Russian delegation said.
Obama, speaking after a meeting with South Korean President Lee Myung-bak, said he was confident leaders would support a program for promoting balanced growth, building on a agreement reached at a G20 summit in Pittsburgh last year.
“I don’t think this is a controversial proposition,” he said.
Yesterday’s agenda included dozens of bilateral meetings, but started with a working dinner yesterday.
On the sidelines, the US and South Korea failed to reach accord on a stalled free trade deal, an embarrassing blow to both countries.
Lee said a “little bit” of progress had been made since the finance ministers’ meeting last month in Gyeongju, South Korea, but deep divisions remained over how best to reduce current account imbalances.
A draft of the final communique showed the leaders would back the idea of “indicative guidelines” for the reduction of current account imbalances. However, they were undecided on whether these would be based on “measurable” indicators or more vaguely “quantitative and qualitative.”
An idea floated by Geithner earlier for numerical targets to be set for trade imbalances has now been taken off the table.
The draft showed they would agree to “refrain from competitive devaluation” of currencies, but were debating whether to include the words “competitive undervaluation,” a reference to the US view on China’s currency policy.
An Indian official who declined to be named said the communique would settle on “lowest common denominator” language.
The yuan rose 0.25 percent yesterday and has climbed almost 3 percent since Beijing loosened its grip on the tightly managed currency in June. Washington has welcomed the slow but steady appreciation, although it has said more movement is needed.
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