US Treasury Secretary Timothy Geithner is keeping up the pressure on China to raise the value of its currency and lower its enormous exports after the world’s top finance officials failed to make definite commitments in two tense days of talks here.
In negotiations that went far into early hours Saturday, finance ministers and central bank officials from 19 countries and the European Union settled for a final communiqué promising to “refrain from competitive devaluation of currencies” – that is, not to lower exchange rates in order to undersell competitors in foreign markets.
Mr. Geithner promptly followed up the talks with his G20 colleagues by flying to the Chinese coastal city of Qingdao for an unexpected meeting with China’s top finance official, Wang Qishan, vice premier in charge of economic affairs. Their rendezvous Sunday at the Qingdao airport was reportedly brief, however, and was not believed to have gone further than the wording of the communiqué that wound up the talks here.
All a US Embassy official in Beijing would say is that the two “exchanged views” and also talked about the next major event in trying to resolve global imbalances at the summit of G20 leaders, including President Obama and China’s President Hu Jintao, in Seoul on Nov.11-12. The meetings here were a prelude to that event – a table-setter in which ministers sought to reach basic understandings that heads of state will confirm in an “action statement” in which they will wind up the summit.
Geithner rebuffed ...
Geithner was rebuffed at the outset when his counterparts from countries ranging from Germany to Japan, from India to Russia, poured cold water on his proposal for restricting current accounts surpluses to 4 percent of gross domestic product (GDP). In other words, he wanted every country to promise that the net balance from trade, transfers of money from abroad, and interest and dividend payments would remain within that band.
The purpose of that proposal was to restrain China, whose current accounts surplus is nearly 5 percent of its GDP, and Germany, with a surplus of approximately 6 percent, from overwhelming markets with exports while taking far fewer imports. The US by contrast is running a current accounts deficit of 3.2 percent, third highest among G20 nations after Turkey and South Africa.
... but showed no signs of defeat
Geithner showed no sign of defeat, or even disappointment.
“We found agreement that we have to set thresholds," he told reporters here. “We found a lot of support.”
His concern about China was clear, however.
“[Those countries] that have traditionally run large trade and current account surpluses [must get away] from export dependence [and move] toward stronger domestic demand-led growth,” he said, meaning that countries like China should focus on selling their products at home rather than abroad.
'Currency war' averted
Negotiations here at least seem to have staved off the immediate threat of a “currency war” – a term introduced last month by Brazil’s finance minister, Guido Mantega, who did not attend the meetings here.
The ministers seemed to have committed themselves to that much by promising to “pursue the full range of policies” for “reducing excessive imbalances.”
They also vowed to “resist all forms of protectionist measures” – widely viewed as a worst-case scenario in which countries place high tariffs and quotas on imports in order to keep them from competing with their own products.
Agreement on IMF influence
In the only really substantive agreement reached here, the ministers agreed on giving emerging market countries, notably China and India, far more influence over the International Monetary Fund.
The IMF in the last two years has vastly increased its power to assist countries on the brink of financial disaster but has been widely criticized for representing the views basically of established economies.
Under the deal reached here, Europe is giving up two seats on the 24-member board to emerging markets while raising the voting shares of emerging market countries by 6 percent. The United States still has the highest voting share, but China now has the third-highest voting share and India the eighth.
“The IMF is playing an increasing role of being an honest broker,” said Dominique Strauss-Kahn, the IMF managing director. “It’s a big day for Korea and a big day for the IMF. We don’t have a day like this every time” – an allusion to recent talks in Washington in which the IMF seemed mired in disagreements.