LEADERS OF the world’s 20 top rich and emerging economies agreed to tackle destabilising trade imbalances but stopped short of confronting thorny currency issues head-on at a summit in Seoul overshadowed by Ireland’s debt woes.
The two-day summit began in a flurry of acrimony but ended with grudging agreement. It was supposed to banish the spectre of a currency war, but instead the leaders of the Group of 20 economies – including US president Barack Obama and China’s Hu Jintao – issued a watered-down statement that only said they agreed to refrain from “competitive devaluation” of currencies.
This does not mean very much as countries usually only devalue their currencies in extreme situations.
Mr Obama struck a positive note, saying the global economy was back on track, but he also accused China of resorting to “competitive undervaluation” – artificially keeping its yuan weak to gain a trade advantage.
“It is undervalued. And China spends enormous amounts of money intervening in the market to keep it undervalued,” he said of China’s currency and he urged China “in a gradual fashion” to let markets set the currency’s value.
The communique steered clear of the phrase “competitive undervaluation”, a reference to China’s currency policy that had been inserted into a draft of the statement by policy advisers in preparatory talks before the summit.
There are fears that currency manipulation could lead to damaging protectionism of the kind that caused so much harm during the Great Depression in the 1930s.
The US failure to push through its will at the G20 is a sign of how Washington’s influence is less than it was internationally, with booming economies such as China able to dictate the terms of reference more than ever before. Mr Obama also failed to conclude a free trade agreement this week with South Korea.
The communique in the end did not mention Ireland, as many thought it would, and its vows to deal with imbalances did not come across as too sturdy, but Mr Obama defended the underwhelming outcome to the G20.
“The work that we do here is not always going to seem dramatic. It’s not always going to be immediately world-changing. But step by step what we’re doing is building stronger international mechanisms and institutions that will help stabilise the economy, ensure economic growth and reduce some tensions,” he said.
Gregory Chin, an economist at the Canada-based Centre for International Governance Innovation, said that the G20 showed that developments were taking place on a more incremental basis.
“We don’t have the urgency of a global financial system in freefall. What was interesting was the long-term momentum,” he said.
The G20 agreed to allow emerging markets to impose carefully designed control measures to limit massive capital inflows.
They also agreed that 2011 was a “critical window of opportunity, albeit narrow,” to conclude the long-elusive Doha round of trade liberalisation talks launched in 2001. The G20 also reaffirmed its commitment to tackling climate change and said it would “spare no effort” to reach a successful outcome at environment talks in Cancún.
