Tag Archives: global imbalances

G-20 Finance Ministers To Stumble, Squabble Through Paris Meeting

The G-20, whose finance ministers and central bankers meet in Paris this weekend, no longer looks as unified, and thus as relevant, as it did in the heat of the global financial crisis. Its summit meeting in Seoul last November left a lot of unfinished business on the table — global imbalances, capital flows, America’s monetary policy and China’s exchange rate. This weekend’s ministerial meeting has to pick these up again if there is to be any hope that they can be cleared off the table when their bosses convene for their heads of state and government summit in Cannes in November.

Since Seoul, there has been some progress on the issue of the yuan’s revaluation and China’s rebalancing by shifting from export-led to domestic-demand-led growth, though neither far nor swiftly enough to satisfy Beijing’s critics on either score. China, like most of the advanced G20 members with the notable exceptions of the U.S. and Japan, has also made a start on draining off some of the liquidity pumped in by stimulus programs. Beijing has also made more moves to make the yuan a more international currency though it is not yet sufficiently convertible for inclusion in the currency mix behind the IMF’s Special Drawing Rights. However, reform of the international monetary system and global governance are pet projects of this year’s G-20 president, France’s President Nicolas Sarkozy. Those could put some wind behind China’s sails in Paris, but it will be mostly rhetorical wind we suspect. A fully internationalized yuan remains a distant prospect.

The most that is likely to be achieved in Paris is some sort of agreement over which national economic indicators should be used to analyze global imbalances. Even these will be no more than broad-brush current-account measures. Numerical targets to set against those indicators aren’t in even the wildest imaginations. China, along with Germany, the world’s two biggest exporters, have made clear that they have set their faces against any target for current-account imbalances expressed as a percentage of GDP.

Commodity prices, and particularly the high prices of agricultural commodities, are most likely to hijack the agenda. This is an issue of acute interest to Beijing, where drought and inflation remain stubbornly persistent and thus politically threatening. The French have been pushing the idea of G-20 price controls, though it is far from clear how those would work in practice even if they could be agreed on, which is doubtful given the disparate commodities interests of the G-20 members. Sarkozy has called a first ever meeting of G-20 agriculture ministers in May, but it is whether finance ministers decide to doing anything about commodity derivatives that will matter more. We suspect we shall see nothing more biting than a study.

 

Leave a comment

Filed under Economy

G-20’s Seoul Inaction Plan

If there is one thing that can be said about the newly-concluded G-20 summit in Seoul it is that everyone can claim it was a success, without having to do anything immediately about it, and certainly not the same thing. The final communiqué’s wording left open many interpretations of its headline commitments, that the major economies have agreed to refrain from competitive devaluations, that they will get the IMF to come up with indicative guidelines to tackle imbalances, and give emerging economies a bigger say in the IMF.

None of those represent much if any advance from where the G-20’s finance ministers had got earlier this month at their preparatory meeting, but given the gradual drifting apart of the consensus over the coordinated management of the global economy that had formed to deal with the global financial crisis of 2008 and the substantial differences over currencies, trade and quantitative easing going into the meeting (and expressed acrimoniously at times during it, we hear, particularly when Chinese and American officials were in the same room) that was not nothing. But the leaders came up with neither timetables nor hard goals to turn their good intentions, however vague, into actionable policy:  a what, but no when nor how much. (Asking the IMF to look at something next year doesn’t count as a when.)

So on to the APEC summit in Yokohama for many of the G-20 leaders to reprise many of the same economic issues with similar lack of progress. Meanwhile, this Bystander feels, the Seoul Action Plan, for, yes, the G-20’s communiqué lays it out, will be rather like the revaluation of the yuan, all in its own time.

This post was first published on Market Bystander.

Leave a comment

Filed under Economy

China Turns Down U.S. Currency War Offer It Was Always Going To Refuse

As this Bystander expected, prospects for the G-20 calling a truce in the currency wars seem remote. Reuters news agency is reporting that China, India and Germany are rejecting out of hand a U.S. proposal to set numerical targets for trade surpluses and deficits at the G-20 finance ministers meeting in Seoul this weekend.

The American proposal would put far too much flesh for the taste of the surplus nations on the bone of a mom-and-apple-pie agreement among the G20 a year ago that big surplus countries like China would aim to shift growth away from being export led while the big deficit economies like the U.S. would seek to boost domestic savings. We expect the communiqué to be issued after this weekend’s meeting will be long on good intentions but short on any agreed measures — let alone commitments — to make good on them, not the ideal preparation for the G-20 leaders’ summit next month.

This post was first published on Market Bystander.

Leave a comment

Filed under China-U.S., Economy