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U.S. Proposes Benchmark for Limiting Trade Imbalances
Do you think we could recycle the old line, A Carpet of Gold or a Carpet of Bombs?
Do you think we could recycle the old line, A Carpet of Gold or a Carpet of Bombs?
By SEWELL CHAN
The Obama administration on Friday urged the world’s biggest economies to set a numerical limit on their trade imbalances, in a major new effort to broker an international consensus on how to handle festering exchange-rate tensions.
Officials from Britain, Canada and Australia quickly expressed support for the idea, but Germany expressed resistance and Japan seemed ambivalent. China, whose currency battle with the United States has threatened to derail the process of global economic cooperation, had not formally weighed in.
The range of responses illustrated the challenge in securing support among the Group of 20 economic powers before a meeting of their leaders next month in Seoul, South Korea.
Treasury Secretary Timothy F. Geithner offered the administration’s proposal at a two-day meeting of G-20 finance ministers and central bankers in Gyeongju, South Korea. Mr. Geithner called for the biggest industrialized economies to keep their current-account balance — whether a surplus or a deficit — below 4 percent of gross domestic product.
A country’s current-account balance is the combination of balances of trade in goods, services, income and net unilateral transfers like foreign aid. The United States, Canada and Britain have trade deficits, while China, Germany and Japan have surpluses. China’s current-account surplus is currently 4.7 percent, and the United States’s deficit is 3.2 percent. Of the G-20 countries, Germany (6.1 percent) and Russia (4.7 percent) also have sizable surpluses.
The proposal in essence tries to set a numerical target to achieve the broad but vague mantra of “strong, sustainable and balanced growth,” to which the G-20 countries agreed in September 2009 in their meeting in Pittsburgh.
Deficit countries should increase national savings, Mr. Geithner wrote in a letter outlining the proposal, by stabilizing their public indebtedness over the medium term and raising exports, while surplus countries “should undertake structural, fiscal and exchange-rate policies” to boost domestic demand. “Since our current-account balances depend on our own policy choices as well as on the policies pursued by other G-20 countries, these commitments require a cooperative effort,” he wrote.
The German economy minister, Rainer Brüderle, told reporters that the proposal could be viewed as a reversion to “planned economy thinking.” Germany has long been an export giant.
The Japanese finance minister, Yoshihiko Noda, did not rule out Mr. Geithner’s idea, but he did not embrace it either. “It might be a problem if we set the rigid numerical target,” he told reporters, “but it would be O.K. to see it as a reference number.”
Even if the countries agreed to the 4 percent target, it would not be compulsory. The G-20 operates through shared interests and peer pressure, and its agreements do not have the force of law.
The United States has been pressing the International Monetary Fund to play a more assertive role in helping evaluate whether the G-20 countries are fulfilling their commitments. The fund is responsible for monitoring countries’ fiscal and monetary policies, and for discouraging them from manipulating their exchange rates. And although it cannot compel its members to act, its economic findings carry great weight.
The Obama administration’s proposal added some momentum to a meeting for which many officials and experts had low expectations.
Britain’s chancellor of the Exchequer, George Osborne, who earlier this week laid out a drastic package of budget cuts in his country, expressed interest in and support for the Geithner proposal, a spokesman said.
The Australian treasurer, Wayne Swan, called the Geithner proposal “a constructive one.” And James M. Flaherty, Canada’s finance minister, seemed to warm to the idea, saying, “We agree because it fits with the strong, sustainable, balanced growth that we need to accomplish.”
“No one wants to be confrontational here,” he said. “No one wants to walk away from here without an agreement on an action plan.”
He added, “There’s a desire to reach consensus, to be collaborative, to move in the direction of an action plan that we can present to our leaders so that they can adopt it when they meet here in a couple of weeks.”
Mr. Flaherty, who led a separate meeting of the Group of 7 powers on Friday afternoon in Gyeongju, also said he had met with his Chinese counterpart, Xie Xuren, to discuss the currency issue.
“I think there’s a willingness to open the door to more flexibility over time,” Mr. Flaherty said. “I think there’s a recognition that this currency issue has to be addressed.”
In his letter, Mr. Geithner also said the G-20 countries should refrain from “exchange-rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency.” And he suggested that the I.M.F. publish a semiannual report “assessing G-20 countries’ progress toward the agreed objectives on external sustainability and the consistency of countries’ exchange rate, capital account, structural, and fiscal policies toward meeting these objectives.”
South Korea has eagerly supported the proposal, hoping to help broker a truce so that exchange-rate tensions do not undermine the G-20 gatherings, which this year are a source of Korean pride.
The Korean finance minister, Yoon Jeung-hyun, told Mr. Geithner about “the importance of American cooperation in a way to an agreement on solving global imbalance,” and Mr. Geithner “promised unwavering support” for a consensus by the time of the leaders’ meeting next month, a spokesman for the Korean government said.
The South Korean president, Lee Myung-bak, even joked that the ministers and central bankers might not be able to leave if they did not reach a deal. “If you do not reach an agreement, when you come to leave, we may not operate buses, trains or planes,” he said.
http://www.nytimes.com/2010/10/23/bu...e.html?_r=1&hp
The Obama administration on Friday urged the world’s biggest economies to set a numerical limit on their trade imbalances, in a major new effort to broker an international consensus on how to handle festering exchange-rate tensions.
Officials from Britain, Canada and Australia quickly expressed support for the idea, but Germany expressed resistance and Japan seemed ambivalent. China, whose currency battle with the United States has threatened to derail the process of global economic cooperation, had not formally weighed in.
The range of responses illustrated the challenge in securing support among the Group of 20 economic powers before a meeting of their leaders next month in Seoul, South Korea.
Treasury Secretary Timothy F. Geithner offered the administration’s proposal at a two-day meeting of G-20 finance ministers and central bankers in Gyeongju, South Korea. Mr. Geithner called for the biggest industrialized economies to keep their current-account balance — whether a surplus or a deficit — below 4 percent of gross domestic product.
A country’s current-account balance is the combination of balances of trade in goods, services, income and net unilateral transfers like foreign aid. The United States, Canada and Britain have trade deficits, while China, Germany and Japan have surpluses. China’s current-account surplus is currently 4.7 percent, and the United States’s deficit is 3.2 percent. Of the G-20 countries, Germany (6.1 percent) and Russia (4.7 percent) also have sizable surpluses.
The proposal in essence tries to set a numerical target to achieve the broad but vague mantra of “strong, sustainable and balanced growth,” to which the G-20 countries agreed in September 2009 in their meeting in Pittsburgh.
Deficit countries should increase national savings, Mr. Geithner wrote in a letter outlining the proposal, by stabilizing their public indebtedness over the medium term and raising exports, while surplus countries “should undertake structural, fiscal and exchange-rate policies” to boost domestic demand. “Since our current-account balances depend on our own policy choices as well as on the policies pursued by other G-20 countries, these commitments require a cooperative effort,” he wrote.
The German economy minister, Rainer Brüderle, told reporters that the proposal could be viewed as a reversion to “planned economy thinking.” Germany has long been an export giant.
The Japanese finance minister, Yoshihiko Noda, did not rule out Mr. Geithner’s idea, but he did not embrace it either. “It might be a problem if we set the rigid numerical target,” he told reporters, “but it would be O.K. to see it as a reference number.”
Even if the countries agreed to the 4 percent target, it would not be compulsory. The G-20 operates through shared interests and peer pressure, and its agreements do not have the force of law.
The United States has been pressing the International Monetary Fund to play a more assertive role in helping evaluate whether the G-20 countries are fulfilling their commitments. The fund is responsible for monitoring countries’ fiscal and monetary policies, and for discouraging them from manipulating their exchange rates. And although it cannot compel its members to act, its economic findings carry great weight.
The Obama administration’s proposal added some momentum to a meeting for which many officials and experts had low expectations.
Britain’s chancellor of the Exchequer, George Osborne, who earlier this week laid out a drastic package of budget cuts in his country, expressed interest in and support for the Geithner proposal, a spokesman said.
The Australian treasurer, Wayne Swan, called the Geithner proposal “a constructive one.” And James M. Flaherty, Canada’s finance minister, seemed to warm to the idea, saying, “We agree because it fits with the strong, sustainable, balanced growth that we need to accomplish.”
“No one wants to be confrontational here,” he said. “No one wants to walk away from here without an agreement on an action plan.”
He added, “There’s a desire to reach consensus, to be collaborative, to move in the direction of an action plan that we can present to our leaders so that they can adopt it when they meet here in a couple of weeks.”
Mr. Flaherty, who led a separate meeting of the Group of 7 powers on Friday afternoon in Gyeongju, also said he had met with his Chinese counterpart, Xie Xuren, to discuss the currency issue.
“I think there’s a willingness to open the door to more flexibility over time,” Mr. Flaherty said. “I think there’s a recognition that this currency issue has to be addressed.”
In his letter, Mr. Geithner also said the G-20 countries should refrain from “exchange-rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency.” And he suggested that the I.M.F. publish a semiannual report “assessing G-20 countries’ progress toward the agreed objectives on external sustainability and the consistency of countries’ exchange rate, capital account, structural, and fiscal policies toward meeting these objectives.”
South Korea has eagerly supported the proposal, hoping to help broker a truce so that exchange-rate tensions do not undermine the G-20 gatherings, which this year are a source of Korean pride.
The Korean finance minister, Yoon Jeung-hyun, told Mr. Geithner about “the importance of American cooperation in a way to an agreement on solving global imbalance,” and Mr. Geithner “promised unwavering support” for a consensus by the time of the leaders’ meeting next month, a spokesman for the Korean government said.
The South Korean president, Lee Myung-bak, even joked that the ministers and central bankers might not be able to leave if they did not reach a deal. “If you do not reach an agreement, when you come to leave, we may not operate buses, trains or planes,” he said.
http://www.nytimes.com/2010/10/23/bu...e.html?_r=1&hp