G-20 to Push Current Balance Guidelines

Group of 20 leaders agreed Friday to prepare early warning indicators to curb excessive current account imbalances by next June to prevent instability worsening in the global economy.


But they failed to agree on the U.S. proposal to adopt a specific numerical cap on the ratio between current account surplus or deficit and GDP in the face of opposition from China, Germany and other major export-driven economies.


In a watered-down agreement, leaders said their finance ministers and the International Monetary Fund would draw up indicative guidelines on excessive imbalances next year

“These indicative guidelines composed of a range of indicators would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken,” the G20 leaders’ statement said after their two-day meeting in Seoul.


They said the first assessment will be initiated and undertaken in due course under the French presidency of the summit next year.


France formally took on the G20’s rotating presidency at the end of the G20 summit in Seoul. The 2011 summit will be held in Cannes on Nov. 3 and 4.


“It is a remarkable progress that we agreed on a detailed schedule for the indicative guidelines to maintain balanced current accounts,” President Lee Myung-bak, host of the Seoul summit, said during a joint press conference.


“If they are implemented as agreed, it would greatly contribute toward preventing a global economic crisis. We all have to cooperate for this.”


Concerning the currency issue, they agreed to move toward more market-determined exchange rate systems, enhancing exchange rate flexibility to reflect underlying economic fundamentals and refraining from competitive devaluation of currencies.


The leaders affirmed their finance ministers’ agreement that advanced economies, including those with reserve currencies, would be vigilant against excess volatility and disorderly movements in exchange rates.


“These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging countries,” their joint declaration said.


U.S. President Barack Obama hailed the outcome of the summit. “What remarkable is it that we actually made real progress,” he said during a press conference.


U.K. Prime Minister David Cameron said: “This time, we are not meeting with the same sense of crisis, so it makes it more difficult.”


They pledged to continue with coordinated efforts and act together to generate strong, sustainable and balanced growth.


They said G20’s relentless and cooperative efforts over the last two years have delivered strong results but the world still faces risks.


“Some of us are experiencing strong growth, while others face high levels of unemployment and sluggish recovery. Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions. However, uncoordinated policy actions will only lead to worse outcomes for all,” it said.


The leaders adopted the Seoul Action Plan composed of comprehensive, cooperative and country-specific policy action.


The plan called for the nations to undertake macroeconomic policies, including fiscal consolidation where necessary.


Regarding the issue of financial reform, the Seoul declaration progressed further from Gyeongju accord and agreed to “conduct rigorous risk assessment on these firms (Systematically Important Financial Institutions) through international supervisory colleges.”


The G20 leaders also pledged to continue to resist all forms of protectionism and seek to make significant progress to further reduce barriers to trade.


“We will refrain from introducing, and oppose protectionist trade actions in all forms and recognize the importance of a prompt conclusion of the Doha negotiations.”


They adopted the Seoul Development Consensus for Shared Growth that sets out their commitment to work in partnership with other developing countries to help them build the capacity to achieve and maximize their growth potential, thereby contributing to global rebalancing.


The Seoul Consensus complements our commitment to achieve the Millennium Development Goals and focuses on concrete measures as summarized in an multi-year action plan on development to make a tangible and significant difference in people’s lives, including through the development of infrastructure in developing countries, it said.