G20 leaders head into trade showdown

A deeply divided G20 struggled to move beyond broad promises of economic cooperation as world leaders gathered in Seoul for a two-day summit on Thursday.

By (Reuters)

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Published: Thu 11 Nov 2010, 11:06 AM

Last updated: Mon 6 Apr 2015, 9:29 AM

Former US Federal Reserve Chairman Alan Greenspan said the United States was pursuing a policy of weakening the dollar, adding fuel to an already heated debate over the US Federal Reserve’s bond-buying spree to revive the economy.

The Group of 20 club of rich and emerging economies had hoped to use the summit to soothe tensions over foreign exchange rates that have been created by sharply divergent growth rates. US President Barack Obama urged his peers to put aside differences and follow through on previous agreements to even out imbalances between cash-rich exporting nations and debt-burdened importers.

Thursday’s agenda included dozens of bilateral meetings as well as ceremonies to mark the Veterans Day holiday. The summit officially kicks off with a working dinner Thursday night and a full day of meetings on Friday.

Behind the scenes, negotiators squabbled over the language in a closing statement to be issued at the summit’s conclusion on Friday. The final version may not venture far beyond agreements reached by G20 finance ministers last month, yet it was still proving difficult to agree on the wording.

Kim Yoon-kyung, spokesman for Korea’s G20 summit committee, said deputies made progress on less controversial matters such as reforming the International Monetary Fund but were far apart on core issues of currencies and imbalances.

“The gap was so wide they were unable to agree on today’s meeting schedule,” he said at a press briefing.

Conflict on the menu

South Korean President Lee Myung-bak said a “little bit” of progress had been made since the October finance ministers meeting in Gyeongju, South Korea, but deep divisions remained over how best to reduce current account imbalances.

Leaders will discuss it at Thursday’s dinner, he said.

“We had reached an agreement (at Gyeongju) despite scepticism that no agreement would be reached because of a divide in opinion between US, China, Europe and other countries,” he said, adding that the leaders would back the idea of “indicative guidelines” for the reduction of current account imbalances.

Ireland’s deepening debt troubles posed another potential problem for the G20, which promoted this summit under the banner of “Shared Growth Beyond Crisis.” Ireland’s fragile government is battling to prove it does not need a Greek-style rescue to help it reduce the worst budget deficit in Europe.

Protests were set to intensify in the Korean capital on Thursday, although police set up a security corridor around the summit site and planned to keep disruptions far from the leaders.

There have been hundreds of applications for rallies, mostly by small groups, with a mass rally involving possibly tens of thousands scheduled for Thursday afternoon.

The biggest battle inside the summit is over the US Fed’s easy money policy. The central bank’s announcement last week that it plans to buy another $600 billion in government bonds drew sharp rebukes from many G20 members who said the United States was ignoring consequences abroad.

Greenspan, the former Fed chairman, did not directly point the finger at his former central bank colleagues but said weak currency policies in both the United States and China were exacerbating global frictions.

China’s yuan, also known as the renminbi, rose 0.25 percent on Thursday and has climbed almost 3 percent since Beijing loosened its grip on the tightly managed currency in June. Washington has welcomed the slow-but-steady appreciation, although it has said more movement is needed.

“The suppression of the renminbi and the recent weakening of the dollar are, of necessity, producing firming exchange rates in the rest of the world to, as they see it, the rest of the world’s competitive disadvantage,” Greenspan wrote in the Financial Times. “Something has to give in this arena of zero-consolidated current account balances.”

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