The G-20 developed and developing countries reached a deal on Saturday on what indicators can be used to measure and tackle the economic imbalances at the heart of the global crisis, the French G-20 presidency announced.
French economy minister Christine Lagarde said the accord marked the “first step” towards correcting these problems — in trade and currencies — thereby putting the global economy on track to more balanced growth and prosperity.
Mr Lagarde told a press conference there had been a long debate on the indicators to be used and lengthy discussion, after reports that China, sensitive over its currency policy, was holding out against an accord.
“It was not simple,” Mr Lagard said at the end of the two-day meeting, the first under France’s G-20 presidency.
Earlier, addressing the G-20 meeting, finance minister Pranab Mukherjee reminded it that India was not responsible for creating the volatility in international markets, and expressed strong opposition to a “one-size-fits-all” deal to tackle imbalances.
“India did not (and does not) contribute either to the buildup, or to the persistence of global imbalances... Nor does it contribute to the volatility in several international markets, including commodity markets,” Mr Mukherjee said. He reminded the ministers that the “global recovery remains fragile, uneven and is fraught with significant downside risks arising from the volatility in exchange rates, high commodity prices, persistently high unemployment, high
inflation in some economies and difficulties in formulating medium-term fiscal consolidation plans.”
A series of indicators were under discussion in Paris. Two measure imbalances within countries — the public deficit and debt, plus the level of private savings. The other two measure external imbalances — the current account balance or trade balance, or foreign currency reserves or real exchange rates.
The meeting agreed the first two but on the second there appeared to be a reservation when the communiqué said the trade balance and investment flows would be monitored “taking due consideration of exchange rate, fiscal, monetary and other policies.”
That suggests that foreign exchange policy will be considered only in the wider policy context, something which Beijing has always insisted should be the case in response to Western criticism.
There was no direct mention of foreign exchange reserves. China holds the largest amount at more than $2.5 trillion — one of the major global imbalances that has to be resolved, according to the United States and Western powers. They charge that China keeps its currency weak to boost Chinese exports. China denies any such manipulation, blaming the imbalance on structural problems in its trade partners’ economies.
Asked about the Chinese position, Mr Lagarde said “there were talks, negotiations all night ... We found an accord that I think is balanced,” adding that there could be no winners or losers if progress was to be made.
n World Bank warning: World Bank president Robert Zoellick warned the G-20 leaders here on Saturday that the world was reaching a danger point where soaring food prices threatened further political instability.
“I mentioned that we are reaching a danger point,” Mr Zoellick said, adding that he had urged G-20 finance ministers and central bank chiefs meeting here to “put food first in 2011”.
Mr Zoellick said rising prices would eventually result in increased food supplies but in the intervening couple of years, “there could be an awful lot of turmoil and governments could fall and societies could go into turmoil.” Soaring food, fuel and other basic costs have been one of the key factors driving political unrest across the West Asian region, which forced the ouster of long-standing autocratic rulers in Egypt and Tunisia.
“We need to be sensitive and have a fingertip feel on what is happening in terms of food prices and its potential effect on social instability,” Mr Zoellick said.