SUNDAY, OCTOBER 24, 2010
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Politics & The Nation G-20 powers agree to Geithner currency and trade plan Though the agreement applies
BY HOWARD SCHNEIDER Finance ministers from the
world’smajor nations agreed to a U.S.-brokered plan for easing ten- sions over exchange rates and worldtradepatterns, sayingthata “fragile and uneven” economic re- covery was at risk if top powers pursued conflicting policies or used the value of their currencies to gain an edge for their exports. Aiming to head off what some
have dubbed a developing “cur- rency war,” the statement from thefinanceleadersof theGroupof 20nationswas a carefullyworded bargainacross a range of issues. It put China on the record as seek- ing to bring down its massive trade surplus and let its exchange rate fluctuatemore. It also hinted that anymove by the U.S. Federal Reserve to further easemonetary policy would be measured so as not to disrupt currency values or capital flows in emerging market nations. Although the core ideas are not
newones for theG-20—previous statements from the group have promised similar commitments to flexible exchange rates, for ex- ample — the accord crafted over two days of talks in South Korea represents a tangible step. The group agreed as it has before that “excessive imbalances” in trade and other relationships should even out over time — requiring countries such as China and Ger- many to rely less on exports for their economic growth—and the members pledged for the first time to submit to an agreed-upon procedure for measuring prog- ress. The methods of measurement
are still to be developed, but the language marks a potential turn- ing point as the G-20 struggles to ensure its agreement over broad principles translates into action. U.S. officials say they intend to push for more detail, including possible time frames and numeri- cal targets, as the work of the finance leaders is submitted for approval by the G-20 heads of state who gather in South Korea nextmonth. The plan envisions a greater
role for the International Mone- tary Fund in overseeing whether exchangeratesandtradebalances aremovingas intended.While the IMF has no power over any na- tion's individual policies, the ex- pectation is that the combination of agreed-upon goals and peer pressure could influence how na- tions behave. Changes to the IMF’s structure, including greater representation for emergingmar- ket nations, were also approved by the financeministers in hopes of increasing the fund's authority. “If theworld is going to be able
to grow at a strong, sustainable paceinthefuture. . . thenweneed to work to achieve more balance in the pattern of global growth as we recover from the crisis,” U.S. Treasury Secretary Timothy F. Geithner said in a prepared state- ment after the finance ministers concluded marathon talks in the South Korean city of Gyeongju. “This requires a shift in growth strategies by countries that have traditionally run large trade and current account surpluses away from export dependence and to- ward stronger domestic demand- led growth.” The United States and other
nations with chronic trade short- fallsandhighlevelsofdebtagreed to tackle those problems as well by savingmore on a national level and curbing government deficits. In addition, countries with cur- rencies like the dollar that are used widely around the world agreed to guard against “excess volatility” — a concession to con- cerns among emerging market nations such asBrazil that amove by the Fed to pump more money into theU.S. economy could force up their currency values and hurt their exporters and financial sys- tems.
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to 20 nations representing the vast bulk of the world economy, bilateral tension between the United States and China was at the center of Geithner's push to focus on exchange rates and the lack of progress toward redistrib- uting global trade flows. Chinamanages the value of its
currency carefully, keeping it at a level many economists consider to be belowmarket value tomake its exports cheaper onworldmar-
“. . . we need to work to achieve more balance in the pattern of global growth . . . .” Timothy F. Geithner, U.S. Treasury secretary, in a statement
kets. The issue has taken on heightened significance as the United States tries to boost its share of world trade amid linger- ing high unemployment. Although China has argued
that its exchange rates do not account for the country’s large trade surplus with the United States, the new agreement casts the dispute in a broader context. Countrieswith “persistently large
imbalances,” the agreement states, would undergo closer IMF scrutiny to see if their exchange ratesorotherpoliciesareprevent- ing progress. As part of the agreement, the
finance ministers also agreed to overhaul how the IMF is run. More than 6 percent of the voting power within the agency will be shifted to emerging market pow- ers such as China that are consid- ered underrepresented. In addi- tion, new rules for choosing the
fund’s 24-member executive board will shift two of the board seats fromdevelopedWesternEu- ropean nations to emergingmar- kets. IMF managing director Domi-
nique Strauss-Kahn hailed what he called a “historic” shift in the fund's governance, and said it produced a “totally legitimate board” thatwouldbeabletospeak more authoritativelyonthe issues theG-20 has asked it tomonitor.
schneiderh@washpost.com
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