Saudi Arabia, Germany and Russia have bigger current account surpluses than ChinaGYEONGJU, South Korea: United States struggled on Friday to win backing for its proposal of setting numerical targets for external imbalances as a way of pressing surplus countries such as China to let their exchange rates rise. In a letter to fellow finance ministers of the Group of 20 leading economies, US Treasury Secretary Timothy Geithner said countries should implement policies to reduce their current account imbalances below a specified share of national output. Diplomats said the Treasury chief was proposing to limit surpluses and deficits on the current account - the broadest measure of trade in goods and services - to 4 percent of gross domestic product. But Geithner's proposal met a cool reception on the first day of a two-day meeting meant to smooth the path for a G20 summit in Seoul on Nov. 11-12. German Economy Minister Rainer Bruederle warned of falling back into “planned economy thinking”, while Russian Deputy Finance Minister Dmitry Pankin said the draft communique to be issued on Saturday would stay clear of numerical targets. “The communique is very politically correct. There's nothing sharp in it,” Pankin said. “In the long term the focus should be on the exchange rates reflecting market conditions. Excessive state interference in currencies should be avoided.” Japanese Finance Minister Yoshihiko Noda also voiced skepticism about Geithner's proposal. “We said that we doubt whether rigid numerical targets should be set. But when checking the progress in rectifying imbalances, that might be an idea,” he told reporters. The criticism underscored the difficulties facing the G20 as it strives to put the world economy on a more stable footing and defuse currency tensions that economists fear could trigger trade wars. While the G20 won praise for coordination of stimulus packages during the global financial crisis, its unity has been tested by low growth in rich countries and various attempts by emerging market economies to preserve their export competitiveness by holding down their exchange rates. Saudi Arabia, Germany and Russia are the G20 members with the biggest current account surpluses, but China is the chief culprit in Washington's eyes - and the unspoken target of Geithner's letter - because of its massive currency market intervention to keep a lid on the yuan. Beijing has amassed $2.65 trillion in official currency reserves as a consequence and has prompted the US House of Representatives to pass a bill threatening retaliation unless China lets its currency off the leash to reduce its huge trade surplus with the United States. G20 countries, Geithner said, “should commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing the appreciation of an undervalued currency”. Not everyone rejected the US gambit out of hand. “At a time when people are talking about currency wars, the merit of Geithner's proposal is that it shifts the discussion back to the macroeconomic framework,” a French official said. Jim Flaherty, Canada's finance minister, said setting numerical targets was a step in the right direction. “There's a desire to reach consensus, to be collaborative, to move in the direction of an action plan that we can present to our leaders so that they can adopt it when they meet here in a couple weeks,” he said. Far from being willing to bow to US pressure, many emerging market policymakers blame lax US policies for the global financial crisis. They also fear Washington is prepared to debase the dollar by flooding the banking system with cash to try to breathe life into the stuttering US economy. Expectations that the Federal Reserve will crank up the dollar printing presses has sent a tide of money pouring into emerging markets, boosting their currencies and asset prices and complicating the conduct of fiscal and monetary policy.Brazil and Thailand have responded by introducing controls on capital inflows, while other central banks have stepped up currency intervention to hold down their exchange rates “We must demonstrate that we can, in the immediate term, cooperate to avert what many are now terming a currency war. We must find a solution to this by the Seoul summit, if not by the end of our meeting,” Indian Finance Minister Pranab Mukherjee said.
