G-20 Ministers Squabble Over Measures to Spot Imbalances

Group of 20 finance chiefs remain divided over the next steps to narrow global economic imbalances as they squabble over how to reach a diagnosis.

French Finance Minister Christine Lagarde, who is hosting the meeting starting tomorrow of G-20 central bankers and her counterparts in Paris, said she’s hoping for an accord on which indicators should be used to analyze imbalances that economists blame in part for the financial crisis.

While there’s broad agreement to use the current account as a key measure, some countries are opposed, said a Canadian official who briefed reporters yesterday in Ottawa. Even if they reach consensus on a set of indicators, the ministers probably won’t agree on numerical targets for monitoring trade imbalances. A deal is unlikely this week on specific guidelines, a U.S. Treasury official told reporters in Washington Feb. 15.

“They’ll do what is blindingly obvious” and agree to use current-account indicators, said John Kirton, a professor at University of Toronto, who monitors the G-20.

As the crisis that forged the G-20’s role in 2009 fades, global leaders’ efforts to coordinate policies are increasingly stumbling over their differences. China will probably face renewed pressure to allow its currency to appreciate, a German aide said. One approach under discussion is to add the yuan to the International Monetary Fund’s special-drawing-rights basket, the Canadian official said.

Ministers may also express concern at commodity-price inflation that has sent global food prices soaring.

Korea Clashes
A meeting of G-20 leaders in South Korea in November was marked by clashes over whether Chinese or U.S. policies were more to blame for global trade imbalances. China has rejected policy prescriptions that fault its exchange-rate regime.

G-20 leaders last year agreed to find a set of “indicative guidelines” designed to identify large imbalances and seek actions needed to fix them.

“What we’re aiming for on Friday and Saturday is a common diagnosis, to identify indicators that will allow us to identify imbalances and then the causes of these imbalances,” Lagarde said at a press conference this week in Paris. “China saves and exports. Europe consumes. The U.S. borrows and consumes. Is this model balanced? Probably not.”

Trade and current-account balances, as well as growth differentials and foreign-exchange reserve accumulation, are among indicators France has proposed for discussion, she said.

Avoiding a Repeat

Policy makers are trying to avoid a repeat of the last expansion when U.S. consumers relied on borrowing from abroad to finance their purchases, contributing to an export boom from Asia. As China and other Asian nations accumulated dollars from trade surpluses, they bought U.S. Treasury debt and depressed global yields. Lower borrowing costs helped stoke the U.S. housing and credit booms that later turned to bust.

China, the world’s largest exporter of goods, had a trade surplus of $183 billion in 2010. That represented a narrowing for a second year after a record $295 billion surplus in 2008, customs data show.

U.S. Treasury Secretary Timothy F. Geithner said in October that a ratio for current-account surpluses or deficits of 4 percent of gross domestic product could be seen a benchmark for G-20 countries. China and Germany, the world’s two biggest exporters, rejected any move to set a target for current-account imbalances as a percentage of GDP.

The G-20 meeting will also set up working groups on capital flows and on commodity prices, the German official told reporters yesterday. The challenge is to find ways of avoiding excessive capital inflows into emerging nations such as Turkey without limiting the free flow of capital, the official said. One solution may be to strengthen bond markets in local currencies, the official said.