Business

G20 reaches deal on imbalance indicators

France's Finance Minister Christine Lagarde answers reporters questions during the press conference ending the G20 Finance summit at Bercy Finance Ministry in Paris, Saturday, Feb. 19, 2011
Image caption Ms Lagarde said the deal represented a "spirit of compromise"

The G20 have reached a deal on indicators to detect economic imbalances, the French presidency said, after the meeting ended in Paris.

The world's leading economies agreed on a compromise after "frank, sometimes tense" negotiations, French Finance Minister Christine Lagarde said.

The deal was agreed after softening criteria on current account surpluses to get China on board, reports suggest.

The aim is to co-ordinate policies more to avoid another economic crisis.

Ms Lagarde said there had been lengthy discussion on the indicators to be used, after reports that China, sensitive over its currency policy, had resisted the inclusion of some economic indicators.

"The negotiations were frank, sometimes tense, and led to a final compromise which cannot attribute to any one delegation but which I can say represents a spirit of compromise and of ambition," Ms Lagarde told a news conference.

Currency reserves

China was said to be opposed to including the current account - which measures cash going in and out of the country as a result of trade and other activities - in the list of indicators.

Under the compromise, the current account will be on the list, but the measure will be adjusted to exclude the interest payments that China receives on its multi-trillion dollars-worth of foreign currency reserves, an official told AP news agency.

Image caption The role of the yuan, and China's accumulation of US dollars, was at the heart of the impasse

The indicators also include public debts and deficits and private debt levels and savings rates.

Two other measures that China objected to have also been excluded or watered down.

Other countries had wanted to include the "real effective" exchange rate, an indicator of how over- or undervalued a currency is, as well as the total value of a country's foreign reserves.

Beijing has been accused by trading partners - particularly the US - of accumulating trillions of dollars of currency reserves in a bid to hold down the value of the yuan and give Chinese exporters an unfair trading advantage.

Some economists say that China and other "mercantilist" countries contributed to the 2008 financial crisis by accumulating excessive foreign currency reserves, especially US dollars.

Many Asian countries began building up their reserves in the wake of a crisis in 1997 that saw many of them forced to painfully devalue their currency.

What next?

The BBC's economics correspondent Andrew Walker says the G20 now need to decide how to assess these indicators to identify when a trade imbalance, for example, is a problem, which they aim to do by April.

And there is still the question of what action to take when a serious imbalance is identified.

These next steps could be even harder, our correspondent says.

Ms Lagarde said the indicators were not binding targets but would lead to the drafting of guidelines for co-ordinated economic policies.

It is unclear what will happen if a country is in breach of the guidelines, beyond peer pressure from other G20 members.

The two-day meeting in Paris also agreed other important steps:

  • clear language on implementing deficit reduction
  • implementation of bonus restrictions on the financial sector, with a report in mid-2011 on how far countries have got
  • a commitment not to implement any protectionist measures, which was seen as particularly important in light of rising commodity prices

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