After two days of tense talks, G20 leaders papered over their differences and ironed out a vague compromise on currency devaluation and trade imbalances, two thorny issues that have rocked diplomatic relations in the past weeks.
As they wrapped up a Group of 20 summit in Seoul today (12 November), export-rich countries and debt-laden consumer nations pledged to work together to tackle global economic "tensions and vulnerabilities" that have raised fears of currency wars and trade protectionism.
"We have committed to reducing excessive imbalances and maintaining current account imbalances at sustainable levels. Our method to use indicators to trigger an assessment of macro-economic imbalances and their root causes was backed by the G20 leaders," European Commission President, José Manuel Barroso and European Council President Herman Van Rompuy said in a joint statement.
Leaders had already agreed on a 'framework' for balanced growth and they submitted medium-term economic plans for review by the International Monetary Fund (IMF) to ensure that they do not clash. But the final Seoul summit communiqué did not go much further.
Leaders were unable to agree on setting targets to resolve current account imbalances between countries, as sought by the US, and instead called on the IMF, along with other international organisations, to advise on "indicative guidelines" to help identify large imbalances that require preventive and corrective action to be taken.
Progress on these guidelines, composed of a range of indicators, will be discussed by finance ministers and central bank governors in the first half of 2011.
Resist currency wars
As trade imbalances affect foreign exchange rate fluctuations, leaders agreed to move towards a market-based exchange rate system that reflects underlying economic fundamentals and refrain from any competitive devaluation of currencies, a repeat of a commitment made at a G20 finance ministers meeting last month.
The United States and others have accused China of keeping it undervalued to gain a trade advantage and tried to secure a promise from Beijing that it will let its yuan currency rise more quickly.
But Washington had an even tougher time making that case when many of its allies view the Federal Reserve's easy money as a means of weakening the dollar.
At previous G20 summits, leaders have haggled over whether to include a line in the closing statement singling out China for keeping its currency undervalued. Once again this did not happen.
"Cohesion and cooperation defined the G20 during the crisis. This allowed decisive policy action to help avert a second Great Depression. Now the challenge is to secure the recovery and to create the growth and jobs that the world needs. We all recognise that much remains to be done, but the Seoul Action Plan is a step in the right direction," said IMF Managing Director Dominique Strauss-Kahn.
Reforming the IMF
Leaders endorsed a package of reforms thrashed out by their finance ministers last month to reform the IMF to reflect a shift in the balance of global economic power.
Under the deal, more than 6% of voting shares at the Fund will shift to dynamic developing countries such as China, which will become the third-biggest member of the 187-strong Washington-based lender.
"These quota and governance reforms will, as the G20 recognised in Seoul, enhance the Fund's legitimacy, credibility and effectiveness – making it an even stronger institution for promoting global financial stability and growth for all its members," noted Strauss-Kahn, welcoming the G20 leaders' endorsement of recent governance changes at the IMF.
Doha to end game
Leaders vowed to re-engage in "across-the-board" negotiations to promptly bring the Doha Development Round to a successful, ambitious, comprehensive and balanced conclusion.
Countries have been trying for years to bring to a close troubled negotiations aimed at freeing global trade and extending the benefits of globalisation to developing countries. Leaders now recognise that 2011 is a critical window of opportunity.
"We now need to complete the end game. Once such an outcome is reached, we commit to seek ratification where necessary in our respective systems," reads the final Seoul communiqué.