Finance ministers weigh trade imbalance rules

April 14, 2011, 9:42 p.m. EDT

Finance ministers weigh trade imbalance rules

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — Finance ministers and central bankers from the world’s most powerful industrialized and developing economies are expected to make some inroads on measuring the world’s imbalances — but not correcting them.

In town for the spring meetings of the International Monetary Fund and the World Bank, as well as meetings of the Group of Seven and Group of Twenty, officials may define the yardsticks to determine which countries aren’t helping to solve the problem of global imbalances.

A cheat sheet would say the U.S. — which in February had a trade gap of $45.8 billion — is likely to be found to be importing too much. China — which recorded an unusual trade deficit in the first quarter but has $3 trillion worth of foreign-exchange reserves — is going to be found to be exporting too much.

Government officials say an agreement would amount to a breakthrough in terms of global cooperation.

But many outside experts think any agreement would amount to small beer. They note there are no enforcement tools attached to the yardsticks, meaning that the G-20 can only use moral suasion to get a country to change its policy.

“Indicators without teeth don’t buy you very much,” said Barry Eichengreen, a professor at the University of California Berkeley.

He said the International Monetary Fund and the G-20 would move slowly over more than a decade to tie some form of sanctions to the indicators.

Canadian Finance Minister Jim Flaherty told reporters late Thursday that the global economic recovery remains “fragile.”

There are “lots of things to worry about and we want to make sure we don’t fall back into another crisis as we did not that long ago,” Flaherty said.
Nothing to lift dollar

Flaherty said China’s inflexible currency, the U.S. budget deficit and the European sovereign debt issues were top priorities for the G-20.

But analysts expect few new policy steps to be announced.

At the IMF meetings, the issue of Portugal’s request for financial aid will be in the spotlight, as will the increased talk of restructuring Greek and Irish debts.

“The European debt crisis remains as a continued problem, if it does spill over it is going to get pretty ugly, not only for Europe but for the rest of the world as well,” said Eswar Parasad, economics professor at Cornell University.

Eichengreen said he hoped the G-20 would privately discuss contingency plans if the global economy took a turn for the worse.

Foreign-exchange analysts see nothing on the agenda that would alter current trading patterns of a stronger euro and weaker dollar.

“The take away from these meetings should be that global growth is encouraging, more foreign exchange flexibility is desirable, particularly in Asia, and the U.S. needs to save more. This all seems to point to a further decline in the dollar,” wrote Chris Turner, head of FX strategy at ING, in a research note.

French Finance Minister Christine Lagarde said Thursday there were benefits from the current foreign exchange values of the dollar and the euro. A weak dollar can help the U.S. export sector, while the stronger euro helps Europe pay for imported oil, she said.

The euro /quotes/comstock/21o!x:seurusd EURUSD -0.0207% has appreciated 8% vs. the U.S. dollar this year.

The economic leaders of the G-7 are meeting at the French ambassador’s residence in Washington. They are expected to discuss the outlook for the Japanese economy and also how to help the transition to democracy underway in Egypt and Tunisia, Lagarde said at a briefing.

Late on Thursday, finance ministers meeting in Washington agreed to develop a new economic action plan to assist Tunisia and Egypt, U.S. Treasury Secretary Timothy Geithner and Lagarde announced.

A plan will be developed after several international financial organizations, including the World Bank, the International Monetary Fund and the European Bank for Reconstruction and Development conduct an economic assessment, the officials said in a statement.

Tunisia and Egypt are struggling to make democratic reforms following revolutions in their respective countries, even as tourists and investors are reluctant to return.

In their statement, Geithner and Lagarde said the plan will develop new growth strategies to promote job creation for youth. The first recommendations will be presented by the end of May, the officials said.

Lael Branard, Under Secretary of the Treasury for International Affairs, estimated that the World Bank, the International Finance Corp. and the African Development Bank have more than $4 billion potentially available for Egypt and Tunisia over the next year alone.

Eichengreen said he hoped the G-7 would give the EBRD a central role in the development of Egypt and North Africa.

The bank played a big role in the transition of Eastern Europe away from the communism.

“They are in the business of lending to the private sector, which is where the action is in Egypt,” he said.

Analysts said the U.S. and China relationship remains testy but is not on the front-burner at this weekend’s meeting.

The G-20 meeting is due to conclude Friday afternoon, and the IMF and World Bank meetings finish on Saturday.

Greg Robb is a senior reporter for MarketWatch in Washington.

[You must be registered and logged in to see this link.]

G-20 nations reach agreement on imbalances

AP - 4/16/2011

Christine Lagarde AP – France's Finance Minister Christine Lagarde, who serves as chair of the Group of 20, begins a news conference …


By MARTIN CRUTSINGER and HARRY DUNPHY, Associated Press – Sat Apr 16, 7:52 am ET

WASHINGTON – The world's major nations have put together a new monitoring process that they hope will halt the types of destabilizing economic imbalances that contributed to the worst global downturn since World War II.

Finance officials in the United States and other members of the Group of 20 major economies said the new program will closely follow key measurements of economic health such as government budget and trade deficits, personal savings levels and investment flows between nations.

The hope is that the monitoring process will highlight problems before they become so big that they pose a threat to global growth. But the deal announced Friday by the G-20 left many questions unanswered about just how effective the new procedures will be.

Global financial reform will continue on Saturday to be the focus of meetings of the policy-setting committees of the 187-nation International Monetary Fund and the World Bank. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke were representing the United States at the talks.

Geithner also had a round of one-on-one meetings scheduled Saturday with finance officials from Portugal and Greece, two nations facing serious debt troubles, and officials from the European Union and Germany who have been involved in the efforts to deal with Europe's debt problems.

Geithner was also scheduled to meet with Egyptian Finance Minister Samir Radwan for talks likely to focus on the types of financial support that Egypt needs during its governmental transition.

After the day-long G-20 talks ended, French Finance Minister Christine Lagarde told reporters Friday that the monitoring agreement was a significant achievement in efforts to restore confidence and prevent future financial crises.

"We have made huge progress in relation to the framework for growth," she said. "This is a major step in the right direction."

Lagarde said that all G-20 nations will take part in the monitoring process but in the beginning the focus would be on seven of the world's largest economies. She declined to name all of those countries but the group is expected to include the United States, China, Japan, Germany, France, Britain and India.

Much about the monitoring process, however, is still to be determined including whether countries found to have dangerous imbalances will be identified publicly. China in the past has blocked public release of criticism it has received from the International Monetary Fund.

The initial monitoring effort will be reviewed at an October meeting of the G-20 finance officials who will report on how the process is working to G-20 leaders who are scheduled to meet in Cannes, France, in November. Since there is no enforcement mechanism, it was unclear what pressure can be brought to bear on countries found with dangerous imbalances.

However, officials sought to portray the agreement as a major step forward in addressing the types of problems that were uncovered by the financial crisis that erupted in the United States in the fall of 2008 and contributed to pushing the global economy into the worst downturn since the Great Depression of the 1930s.

"The subprime crisis in the United States — that's exactly the kind of accident we want to avoid in the future," Canadian Finance Minister Jim Flaherty told reporters.

British Chancellor of the Exchequer George Osborne said he expected Britain would be cited in the first report next fall for its sizable government deficit. Others suggested that the United States would also be cited for its government deficit, which is projected to hit $1.5 trillion this year. China could be cited for its trade surplus.

G-20 leaders meeting in Pittsburgh in September 2009 agreed to a goal of rebalancing global growth. But China in particular has resisted the rebalancing program, seeing it as a backdoor to bring greater pressure on Beijing to allow its currency to rise in value against the dollar. Critics contend China is unfairly manipulating its currency for trade advantages.

Russian Finance Minister Alexei Kudrin told reporters a key remaining question will be "whether we make the monitoring mandatory and have sanctions."

In addition to global imbalances, the finance discussions have focused on ways to help poor nations deal with soaring food and energy costs and the dangers of rising inflationary pressures in China and other emerging economies.

___

Associated Press writer Desmond Butler contributed to this report.

[You must be registered and logged in to see this link.]