Economy

Getting a hold on thorny issues

By Ding Qingfen and Wang Bo (China Daily)
Updated: 2010-11-11 16:07

Contrasting views over currency appear ahead of global gathering

SEOUL - In the run-up to the G20 Seoul Summit, deputies from the Group of 20 nations have started grappling over some of the key issues to be discussed at the meeting, including currency rates and current account balances.

In drafting the communiqu to be released at the conclusion of the two-day summit starting on Thursday, more than 50 deputy financial chiefs from the 20 nations have already engaged in heated debates, G20 spokesman Kim Yoon-kyung said at a press briefing in Seoul on Wednesday.

"We're still having a hard time reconciling the contrasting views of different countries, especially over the issues of currency and trade imbalances," Kim said.

"Each country was sticking to its original position," he added. "Voices were raised, they wouldn't compromise, they actually had to keep the door open because the debates became so heated and they were lacking oxygen."

During the meeting of G20 finance ministers, the United States proposed capping the ratio of current account balances to 4 percent of a nation's gross domestic product, which was strongly opposed by others.

In economics, a current account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (largely interest and dividends) and net transfer payments (such as foreign aid).

The current account balance is one of two major indices of the health of a country's foreign trade; the other is net capital outflow.

Japanese Finance Minister Yoshihiko Noda said it is doubtful that agreements on specific numbers will be reached at the meeting, adding: "It is more likely that countries will agree a common approach first."

The leaders from the 20 major developed and developing world economies will meet in Seoul on Thursday and Friday, negotiating the pivotal issues of global economic imbalances, currency policies, trade protectionism and financial regulatory reform.

But the 50-odd deputy financial chiefs, who have already engaged in discussions, cannot reach a consensus on the wording of two contentious issues - currency and current account balances - to appear in the final statement of the G20 summit leaders, which will be released on Friday.

Other issues on the agenda include financial regulatory reform and the reform of the International Monetary Fund, Kim said.

In the lead-up to the summit, some G20 members wrangled over national economic policies, which are casting a shadow over the global economic gathering.

The US Federal Reserve announced last week that it would print another $600 billion long-term government bonds to rescue its economy, known as quantitative easing (QE), and the measure provoked criticism across the world.

Ma Delun, a deputy governor of the People's Bank of China, said this week China is concerned that the US move may "add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and could also stir the formation of asset bubbles".

Real estate sector shows signs of cooling Related readings:  Cut the protectionism: tycoons urge G20 leaders  G20 Summit likely to reach deal on trade imbalance

The Russian government said the US should have negotiated with other G20 nations before making the QE policy decision, urging the G20 to curb measures by individual nations that will affect the global financial system and economy.

Meanwhile, the US has been pressuring China to allow its currency to rise, pledging to bring the topic to the table at the summit. However, as a result of its QE policy, many anticipate that the US will be less aggressive in engaging in finger-pointing at the summit.

China's Vice-Foreign Minister Cui Tiankai said at a press briefing on Wednesday that the G20 summit should not discuss China's yuan or any other specific currency.

On the sidelines of the G20 Business Summit on Wednesday, Perrin Beatty, president and chief executive officer of the Canadian Chamber of Commerce, told China Daily: "There is a possibility that China and the US will reach sort of an agreement during the summit."

World Bank President Robert Zoellick said earlier this week that he was not advocating a return to gold as the standard for exchange rates, adding it is important to look beyond exchange rate issues and focus on economic fundamentals.

"I don't believe there is going to be a currency war. That is an overstated point," Zoellick said.