Talks near end, G20 split over Geithner’s trade target plan

GYEONGJU, SOUTH KOREA: Group of 20 finance chiefs conclude talks on Friday with the US running into resistance as it pushes targets for current account imbalances as a new way of prodding China and other Asian nations to let their currencies rise.

G-20 finance ministers and central bankers are meeting in Gyeongju, South Korea, after weeks of accusations that countries from the US to China risk sparking a trade war by relying on weaker exchange rates to spur economic growth.

Seeking a solution, US treasury secretary Timothy F Geithner proposed in a letter that G-20 members pursue policies to reduce trade surpluses and deficits “below a specified share” of their economies. That suggestion Thursday split the forum of emerging and industrial economies.

“Setting numerical targets would be unrealistic,” said Japanese finance minister Yoshihiko Noda, while German economy minister Rainer Bruederle rejected a ‘command economy’ approach. Indian finance minister Pranab Mukherjee said caps would be hard to quantify. In interviews, Canadian finance minister Jim Flaherty said the idea was a “step in the right direction” and Australian treasurer Wayne Swan called it “constructive.”

By turning the focus to current accounts away from currencies, Geithner is hoping China will be more agreeable to accelerating the yuan’s appreciation after limiting its gain to about 2% against the dollar since June. Without naming any country, he said governments should not use exchange rates to seek “competitive advantage” and urged those with “significantly undervalued currencies” to allow an adjustment.

Chinese officials have countered by promising a gradual increase of the yuan, saying that a sudden move upward would cause social and economic disruption.

The US recommended deficits or surpluses of no more than 4% of gross domestic product, Noda said. The IMF this month estimated China’s surplus will swell to 7.8% of GDP in 2015 from 4.7% this year. A current account is the broadest measure of trade because it includes investment and transfer income and it would be hard to achieve any correction in one without a currency shifting.

The officials seem unlikely to reach an agreement that changes the “status quo” on exchange rate and monetary policies this weekend, Giulia Comotti, a foreign-exchange strategist at Barclays Capital in London, wrote in a research report Friday.