WASHINGTON – The world’s big economies have tried to overcome their differences and flesh out a plan to make the world economy less prone to booms and busts. The challenge of getting the Group of 20 to agree on how to spot and fix dangers to global growth comes as policymakers are worried about more immediate threats – high oil prices, huge debts in some rich nations and unrest in the Middle East.
China, at the center of the ambitious global policy plan, signaled it will only let its tightly controlled yuan currency rise in value at its own speed. Still, the G20 as the major forum for global policy coordination wants to find ways to insulate the economy from some of the imbalances that led to the 2008 crisis. Canadian Finance Minister Jim Flaherty said addressing imbalances between export-rich and debt-burdened countries that have long plagued the global economy was a priority of the G20, which accounts for 85 percent of world output.
But it has become hard to find agreement on just how to reform the world’s financial system now that the darkest days of the financial crisis have passed. The G20 is trying to settle its differences on the imbalances plan in time for a leaders’ summit November. Even if there is agreement, countries will not be bound to follow any policy recommendations that emerge from the monitoring of their policies but officials hope peer pressure will work.
There is a divide between big emerging economies, led by the group known as BRICS, for Brazil, Russia, India, China and South Africa, and developed economies such as the United States. Leaders of the BRICS kept up their calls for a monetary system less reliant on the U.S. dollar at a summit in China this week. China’s central bank governor, Zhou Xiaochuan, stayed at home to attend the BRICS summit but made sure his voice was heard in Washington on the key topic of currency reform, reiterating that currency reform in China will take place gradually.
US officials said ahead of the G20 meeting that currency flexibility was vital to correct excessive trade surpluses. South African President Jacob Zuma, speaking in China, blasted the United States for its super-loose monetary policies and over-spending, which he said threatened the world economy. The Federal Reserve’s $2.0 trillion bond-buying program, designed to stimulate the US economy, has been blamed by emerging economies for driving down the dollar’s value and unleashing destabilising waves of “hot money” into emerging markets in search of higher yields.
A cloudy outlook for global growth complicates efforts to find unity about how to add stability to the economic system. High oil and food prices, the euro zone’s sovereign debt crisis, political infighting over the massive US budget deficit and the impact of Japan’s earthquake, tsunami and nuclear crisis all pose risks to the recovery from recession. G20 officials on Friday were pushing for a deal on how to apply new guidelines to identify countries with excess trade deficits or surpluses and too much debt.
“It is a matter of credibility for the G20 that we agree on the indicative guidelines this weekend,” said Olli Rehn, the European Union’s economic and monetary affairs commissioner. The G20 wasn’t expected Friday to name specific countries that spend or save too much, but if it did, the United States and China would almost certainly top the list.
It would probably include others. French Finance Minister Christine Lagarde said Thursday the biggest economies – those representing five percent of total G20 output – might get special scrutiny. That would also include France, Germany and Japan.
