China was holding out on Saturday against an agreement among the world’s major economies on ways to measure and correct global economic imbalances, refusing to have its massive currency reserves used as an indicator.
Finance ministers and central bankers of the Group of 20 countries were struggling to agree on a set of yardsticks to identify problems that could cause another global financial crisis after senior officials failed to achieve a breakthrough in an all-night negotiating session, delegates said.
China continued to reject attempts to use real effective exchange rates and currency reserves to measure imbalances and wanted trade figures rather than current account balances used to assess economic distortions.
“China and Brazil are objecting, including on real exchange rates. Some countries do not want the words exchange rate included in the set of indicators. This is why the talks are blocked,” Italian Economy Minister Giulio Tremonti said.
A senior G20 official said French Economy Minister Christine Lagarge, chairing the talks, was leaving the indicators issue until the final session in hopes of clinching a last-minute compromise.
“It is looking bleak as of now, the negotiations have turned quite political,” another senior G20 source said. “But I’m not saying it’s a dead end. Ministers want to put something in the communique.”
The world’s number two economy, which overtook Japan this week, has resisted Western pressure to substantially revalue its currency to help rebalance global growth.
Germany held out hope for a deal despite the Chinese stance.
“I think we will reach agreement today on which indicators we [use to] measure imbalances in the future, to fight timely mis-developments, to come to a balanced growth,” German Finance Minister Wolfgang Schaeuble told reporters.
The main developed and emerging economies have agreed on some key indicators, such as government debts and deficits, consumer borrowing and private savings.
But failure to agree even on how to measure mismatches in the world economy would augur badly for the G20 process, charged with finding ways of coordinating global economic policies to smooth out distortions before they trigger future crises.
French President Nicolas Sarkozy, who holds the G20 presidency this year, urged ministers on Friday not to get sidetracked by the indicators dispute and welcomed the fact that China had agreed to host a seminar on reforming the international monetary system in Shenzhen in late March.
“I want to avoid your debates getting bogged down in interminable discussion about these indicators, which are distracting us from the essentials,” Sarkozy said in a speech.
He said a joint approach was the only way forward. “Giving priority to national interests would be the death of the G20,” he said.
Compromise?
Even if all the yardsticks are agreed, there is no sign of numerical targets even being broached.
“Until April in Washington the process of implementation of indicators will be talked about,” Schaeuble said.
France has also run into opposition with its two other G20 priorities — greater transparency and regulation of commodities prices and reform of the international monetary system.
On Friday, ministers said there was broad agreement over two indicators measuring public and private debt but France, and most of the group, wants a full slate covering not just those areas but the current account, the real effective exchange rate and currency reserves as well.
China’s trade surplus has shrunk of late, perhaps explaining why it prefers that measure.
It has consistently pushed back against US pressure to allow its yuan currency to revalue more quickly and complains that “hot money” risks destabilising its economy, pointing the finger at the Federal Reserve’s money printing via a $600-billion bond purchase programme.
One option mooted on Friday was to allow China to opt out of the balance of payments criterion and use its trade balance instead. But two G20 sources said an opt-out was a non-starter.
China’s opposition left G20 deputies — the experts who negotiate on details — with limited options to propose: either accept all the indicators or reject them; introduce a hierarchy where some indicators count more than others or use a time delay for their gradual introduction.
But some delegates said there was doubt whether the Chinese delegation, led by Finance Minister Xie Xuren, was empowered to compromise.
With world shares at 30-month highs, investors seem content for the G20 to take its time, whereas at the height of the crisis two years ago markets were baying for policy action. – Reuters