G20 seeks elusive deal on economic indicators

G20 nations struggled Saturday to overcome Chinese opposition on how best to measure and tackle massive global economic imbalances, key to their flagship initiative to avoid another financial crisis.

Finance ministers and central bankers from the 20 top developed and developing economies sat down for talks after their negotiators worked through the night to resolve disagreement.

“There is still no consensus but it’s evolving,” a G20 diplomatic source told AFP before the talks got underway.

But faced with Chinese opposition to several of the key indicators being considered, French Finance Minister Christine Lagarde decided to delay discussion on them to the end of the talks later Saturday, a G20 source said.

Discussion as a result shifted to other French priorities for its turn at the G20 helm — reforming the international monetary system and reducing volatility in commodities markets.

Failure to agree on the indicators could hobble G20 efforts to remedy the huge trade and currency imbalances at the root of the 2008 global crisis and which many believe continue to threaten disaster.

The G20, whose members account for 85 percent of total world output, became the top global forum in the wake of the 2008 crisis, with avoiding a repeat its top priority through the early diagnosis of economic imbalances and better coordination to eliminate them.

Despite Beijing’s reluctance, France still hopes agreement can be reached on Saturday, said the diplomatic source. Germany, another major exporter nation like China, is trying to mediate a deal so a final accord can be announced.

France wants an agreement as soon as possible so that in the second half of this year the International Monetary Fund can make economic policy recommendations to nations.

“We need a thermometer that works so we can examine the imbalances in all their aspects to make as useful a diagnosis as possible,” one negotiator said.

A series of four indicators are under discussion. Two measure imbalances within countries — the public deficit and debt, plus the level of private savings.

The other two measure external imbalances — the current account balance or trade balance, or foreign currency reserves or real exchange rates.

The disagreement centres on the external indicators, which capture different aspects of a country’s position vis-a-vis the rest of the world and so are crucial to measure the imbalances between them, for example the huge Chinese trade surplus with the United States which Washington blames on a weak yuan.

“China is reluctant, it prefers the trade balance to the current account balance,” which is favoured by other countries, said the diplomatic source.

China is also hostile to currency indicators as it has accumulated huge foreign currency reserves and the yuan is not freely convertible.

China last year resisted a US proposal to stabilise current account balances by setting a four-percent cap on countries’ deficits and surpluses.

The United States and other Western powers accuse China of holding down its currency to boost Chinese exports. China denies any such manipulation, blaming the imbalance on structural problems in its trade partners’ economies.

In welcoming remarks on Friday, French President Nicolas Sarkozy warned the ministers that failure to put aside national interests and reach a deal would kill off the G20.

“The temptation to give priority to national interests is great. But let me tell you clearly — that would be the death of the G20,” said Sarkozy.