The world's biggest economies hope to make progress this week on a plan to identify
countries that put the global economy at risk, while China
warned against any moves that would curb its red-hot growth. The meeting of the Group of 20 rich and emerging-market nations comes at a time of conflicting economic signals.
Just as signs of a strengthening recovery in some rich
countries have pushed their central banks to begin to pull back
on economic supports, world markets have been rocked by fears
that high oil prices will put the brakes on global growth.
Finance chiefs from the G20 countries will try to advance a
complex plan for better balancing the world economy, and
avoiding the kind of imbalances that led to the financial
crisis of 2008-09, when they meet on Thursday and Friday.
Crowding the agenda at the meetings in Washington will be
concerns about oil prices and surging capital flows to emerging
markets, both immediate threats to the recovery. The G20, which includes rich and developing nations such as China, India and Brazil, agrees the world economy needs to be
weaned from U.S. spending and that more demand must come from
trade surplus nations, most notably China.
But agreement on how to achieve this better balance is
proving difficult.
Ahead of the G20 meeting, China, the world's No. 2 economy,
warned it would not let others create a "political tool" for
curbing its economic expansion by trying to cap its hefty trade
surpluses.
China is the country most often associated with excessive
trade surpluses and has been criticized by advanced and
developing economies for its rigid control over the value of
its yuan currency, which holds down the cost of its exports.
As the G20 seeks consensus on how to lay a more solid
foundation for long-term growth, oil prices are near a 32-month
high and prices for other commodities, such as corn and gold,
have hit records. And hot money flows into emerging markets
have driven fears over the risk of asset bubbles.
Oil prices retreated on Tuesday as Goldman Sachs warned of
a price reversal and the International Energy Agency said the
high prices are beginning to curb economic growth.
France, the host of the G20 session, which occurs on the
sidelines of semiannual meetings of the International Monetary
Fund and World Bank, want to build on a hard-fought agreement
in February on indicators for measuring global imbalances.
This time, French officials say the G20 should not only
agree on how to identify those causing imbalances but also
devise a way to red-flag those most responsible.
"We hope to reach a deal on the methodology this week,"
said a French source. "We will demand more of the economies
which are systemic than the economies which are not."
A senior U.S. Treasury official said the G20 hopes to make
progress on guidelines for identifying imbalances this week and
will soon be able to list countries with the biggest problems.
Progress has been slow. China in February refused to accept
consideration of excessive accumulation of foreign currency
reserves as an indicator of possible imbalances.
The U.S. official acknowledged the controversy around the
process was a sign of progress that views are converging. "I
think it is contentious because it is plowing new ground."
France hopes a road map encompassing not only the
indicators to gauge imbalances but a means for applying them
can be signed at a summit it will host in November.
The U.S. Treasury official cited a heightened awareness
among Chinese officials about the need to rebalance its economy
to rely less on exports and more on domestic consumption.
The Group of Seven club of developed countries meets on
Thursday night and the U.S. official said they were likely to
hold to their long-standing position that "excessive
volatility" in currency exchange markets was unacceptable.
The G7 — the United States, Britain, Canada, France,
Germany, Italy and Japan — conducted a rare cordinated
intervention in currency markets last month after the Japanese
yen strengthened sharply after the country's earthquake.
NEW RISKS EMERGE
French officials also want to advance with rules for
curbing volatility in commodities prices although officials
said there was no likelihood of an agreement in Washington on a
proposal to allow trading limits in commodities markets.
France, G20 chair this year, wants to make progress toward
a code of conduct setting conditions for the first time on the
use of controls to tame the type of hot money flows that are
threatening to destabilize many emerging markets.
The IMF agrees that capital controls can be useful at
times, but should be seen as a last resort. G20 members Brazil,
South Korea and Turkey have used them and are unlikely to
accept curbs that would limit their ability to do so again.
In a communique on Friday, the G20 is expected to say the
recovery from the 2007-2009 financial crisis is intact despite
damage from Japan's earthquake and political instability in
North Africa and the Middle East, officials say.
