Paris: G20 ministers aim to hammer out common criteria for measuring global economic imbalances at a gathering on Friday and Saturday that host France hopes will lead to an overhaul of world finance.
French President Nicolas Sarkozy has vowed to reform the world monetary system and commodities markets during his year at the G20 helm, saying he aims to defend poor economies from currency and trade turbulence.
Before treating the illness, however, leaders must agree on the symptoms, so ministers and central bank heads from the 20 big and emerging economies will seek to agree on economic indicators to measure the economic gaps between them.
“Our hope is to reach agreement on indicators from Saturday,” said French finance minister Christine Lagarde.
But she warned: “There is no accord yet, otherwise we would be meeting on Saturday just for fun.”
Once the list of indicators is agreed, the French presidency hopes the G20 will begin examining the relative health of its G20 member states later this year, as agreed at the last G20 summit in November.
Based on the results of this examination, the G20 will then prescribe policy reforms to countries that “diverge too much from the path of optimal growth for the international community,” Lagarde said.
Leaders of the G20, a grouping formed in the tumult of the 2008 financial crisis, are particularly concerned about the effect of large capital flows pushing up the value of a country’s currency, causing imbalances in trade.
“We’d like to see some further development of thinking on what are the appropriate mix of policies under those circumstances, what are the spillovers from one country’s policies to another, and how we address those,” said a US Treasury official.
“We’re not starting out with a prescriptive approach as to exactly what the nature of these policies should be, and how they should be deployed,” added the US official, who asked not to be named.
Another source close to the negotiations said there has already been “quite tough debate” over the French plans, with the so-called “Brics” -- Brazil, Russia, India, China and South Africa -- expressing strong reservations.
Others “see it as a roundabout way of ultimately treating the problem of China,” whose huge trade surplus and foreign currency reserves western powers see as a source of imbalances, the source said.
Sarkozy has reached out to China, Russia and other allies to rally them behind his plans. He plans to meet his Chinese counterpart Hu Jintao in China next month for talks on the sensitive issue of China’s currency policy.
The United States and other Western powers accuse China of holding down the value of its currency to boost Chinese exports. China denies any such manipulation.
A German official who asked not to be named said it was “probable” that the Paris meeting would reach an accord on assessing countries’ current accounts, exchange rates, currency reserves, public budgets and private savings.
But countries are haggling over the details. For example, a country exporting lots of raw materials is more likely to run a trade surplus, raising the question of how to assess all members’ trade balances fairly.
The European Union has called for specific targets to be set and has suggested postponing debate on the most sensitive issues if necessary.
The question of fixed limits is another sensitive point. China last year resisted a US proposal to stabilise current account balances by setting a 4% cap on countries’ deficits and surpluses.
Setting specific targets will be “the next step,” said Lagarde.