Deep tensions over global economy ahead of G20

An all-day G20 planning session grew so intense that officials had to leave the door open to keep the room from overheating, underscoring deep tensions over global economic rebalancing one day before the start of a summit on 11 November.

Deputies drafting a final statement to be released after the two-day Group of 20 summit concludes on Friday remained far apart on pivotal issues, including currency exchange rates, G20 spokesman Kim Yoon Kyung said earlier today.

"We had to open the door because the debate was so animated and the room was getting hot," he said.

The US Federal Reserve's decision last week to spend another $600 billion on government bond purchases has drawn reproaches from four continents and intensified the G20 debate over how best to bolster the global economic recovery and avoid another financial crisis.

Critics charge that the Fed ignored global repercussions – namely a weaker dollar and a flood of cheap cash that could find its way into emerging markets – and violated the cooperative spirit the G20 has worked hard to sustain.

The sharp criticism has made it harder for Washington to press China to allow its yuan currency to rise more rapidly, a central issue in the global rebalancing effort.

Kim, the G20 spokesman, said 40 to 50 deputies were crammed into a small room for a 14-hour session yesterday (9 November), and voices were raised when they discussed a framework for balanced growth that G20 leaders hope will be a cornerstone of the summit.

Officials left empty brackets in several key sections of what will become the final communique, he said, an acknowledgement that they had yet to agree on the language. Another all-day session is scheduled for today, and will continue into Thursday if needed.

UN Secretary-General Ban Ki-moon urged greater G20 cooperation at a "critical moment" for the global economy. "I am concerned by the divergence of opinions on these issues," Ban told a news conference in Seoul. "This is a time for unity."

While the deputies bickered, some leaders sought a calmer tone. British Prime Minister David Cameron said at a Beijing financial conference that the best future for the world economy was to keep trade barriers down.

Security was tight in Seoul, with police and armed forces on high alert, but there have been no big demonstrations so far. Two small protests, against a free trade deal with the United States, and tax reform in South Korea, were staged on Wednesday morning.

Multi-speed recovery

Leaders from the G20 big rich and emerging economies had high hopes that this week's gathering, the fifth since the financial crisis exploded in 2008, would mark the end of crisis and the beginning of a new era of global cooperation. Hosts South Korea printed banners proclaiming a slogan of "Shared Growth Beyond Crisis".

But the crisis-forged unity has given way to sometimes-clashing national policies, reflecting a multi-speed recovery from a global recession.

Most major economies are grappling with sub-par growth, leaving them reliant on exports, while emerging powers such as China and Brazil have roared back to pre-recession strength.

China's politically contentious trade surplus widened to $27.1 billion in October, more than economists had expected, according to trade figures released on Wednesday. US trade figures, due later on Wednesday, are expected to show a wide gap for September.

Stubbornly slow growth in the developed world has fueled concern that governments and central banks will try to kick-start their economies by devaluing their currencies. In response World Bank President Robert Zoellick this week surprised financial markets by suggesting that major powers consider gold as an indicator to set foreign exchange rates.

He told an infrastructure conference in Singapore on Wednesday he was not advocating a return to the gold standard, but it was important for policymakers to look beyond exchange rates and focus on economic fundamentals.

"I don't believe there is going to be a currency war," Zoellick said. "That is an overstated point."

US President Barack Obama, visiting Jakarta before heading to Seoul, acknowledged the G20 still had a lot of work to do.

"One of the key steps is putting in place additional tools to encourage balanced and sustainable growth," he said.

Obama can expect some fierce criticism in Seoul over the Fed's easy-money policy, aimed at reinvigorating US growth. He has defended the Fed's policy, saying the world needed a healthy US economy.

Keeping up a drumbeat of criticism from Beijing, Xia Bin, a member of the Chinese central bank's monetary policy committee, said on Wednesday that the Fed's move was "irresponsible" and could lead to a weaker dollar.

(EURACTIV with Reuters.)

World leaders are currently engaged in a row over currency imbalances and monetary policies that keep currencies artificially low.

The row has come to a head at global G20 talks of world leaders, with an upcoming summit on Thursday 11 November expected to seek an agreement on resolving the row.

China has repeatedly allowed its currency to depreciate, which has angered its global trading partners. 

Europe has repeatedly tried to convince China to correct its currency exchange imbalance, pushing Beijing to focus more on its growing internal market rather than on exports.

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