Tags: Geithner | Tactic | trade | India | Russia | Germany

Geithner's Tactic on Imbalance Targets Riles India, Russia and Germany

Thursday, 21 October 2010 08:05 AM

India, Russia and Germany on Thursday rejected a U.S. proposal for numerical targets for "sustainable" trade surpluses and deficits as a way to help rebalance the global economy.

The swift rebuff underscored the difficulties facing Group of 20 finance ministers as they gather in South Korea to try to find ways to defuse tensions in currency markets springing from the fallout of the global financial crisis.

In an interview with the Wall Street Journal, U.S. Treasury Secretary Timothy Geithner called for an agreement on "norms" on exchange rate policy.

"Right now, there is no established sense of what's fair," he told the paper. "We would like countries to move toward a set of norms on exchange rate policy."

Officials have yet to draft the final communiqué, but media reports said the G-20 would probably restate previous commitments to avoiding competitive undervaluations in favor of more market-driven exchange rates that minimize disorderly swings in currencies.

"Most likely, there will be some general words, along the lines of 'let's all live in peace.' I do not expect much success in this sphere," Russian deputy finance minister Dimitry Pankin told reporters.

Washington is floating the idea of specific targets for current account balances. This would build on a G-20 pledge a year ago to tilt growth away from exports in fast-growing surplus countries, such as China, and to boost savings in rich deficit economies, including the United States.

"We are exploring whether we can agree to commit to keep the external imbalances to levels that are more sustainable, making allowances for different kinds of countries, such as commodity producers," Geithner said.

Diplomats said Washington was proposing that countries should aim to limit their surplus or deficit on the current account — the broadest measure of trade in goods and services — to 4 percent of gross domestic product.

But German Economy Minister Rainer Bruederle said he was opposed to numerical goals.

"Macroeconomic fine-tuning and quantitative targets are not the right approach in our view," Bruederle told Reuters in Berlin before leaving for the G-20 talks.


Russia's Pankin was skeptical about the initiative.

"The United States will try to put the question of exchange rates and current account balances at the top of the agenda, to try to press China to make some commitments on this issue. In my view it is unlikely that they will succeed," he said.

An Indian finance ministry official also gave short shrift to Geithner's idea of numerical goals.

"I do believe that this has to be looked at more fundamentally. By artificially linking current account deficit levels to the GDP you are merely skimming the surface. I am not sure that this will be supported by very many emerging economies," the official told Reuters.


Pankin criticized the United States for piling pressure on emerging markets to lead rebalancing when it was loose U.S. policy settings that were sending capital pouring into developing economies, generating pressure for their exchange rates to rise.

"We think that such policies will not come to any good," he said. Things would not turn out well unless the United States cut its budget deficit and tightened monetary policy, he added.

"It will end badly for everyone, because there will be imbalances in the global economy and in the end it could push it back into recession," Pankin said.

His forthright remarks contrasted with the emollient note on exchange rates struck by Geithner, who hopes that, by preaching currency cooperation, he can coax China to allowing the value of the yuan to rise more quickly.

Major currencies were "roughly in alignment now," Geithner told the Wall Street Journal.

The Treasury chief repeated his view that the yuan, also known as the renminbi, is significantly undervalued. But he said the undervaluation would be corrected over time if the brisker pace of appreciation witnessed since September were sustained.

"If China knew that if it moved more rapidly, other emerging markets would move with them, it would be easier for them to move," Geithner said.

Countries from Brazil to G-20 host South Korea are wary of allowing their exchange rates to rise for fear of losing competitiveness to China.

For its part, Beijing is adamant that the yuan's rate of climb must be gradual.

"If the renminbi exchange rate is not stable, companies will not be stable, employment will not be stable and society will not be stable," the People's Daily, the mouthpiece of the ruling Communist Party, said in an editorial on Thursday.

"If there are problems in China's economy and society, this will be a disaster for the world," the paper said.

The task for finance ministers and central bank governors, at a two-day meeting starting on Friday, is to paper over such tensions so they do not mar a G-20 summit next month in Seoul.

"We can see there are imbalances, that coordination is at times lacking on policy," French Finance Minister Christine Lagarde said in Paris.

© 2019 Thomson/Reuters. All rights reserved.

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India, Russia and Germany on Thursday rejected a U.S. proposal for numerical targets for sustainable trade surpluses and deficits as a way to help rebalance the global economy. The swift rebuff underscored the difficulties facing Group of 20 finance ministers as they...
Thursday, 21 October 2010 08:05 AM
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