G-20’s Efforts on Growth Stall

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  • Posted on April 14, 2011


    The Group of 20’s flagship effort to bolster global growth is floundering and unlikely to get much of a lift from a conference of its finance ministers in Washington Friday.

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    IMF Managing Director Dominique Strauss-Kahn, left, and Treasury Secretary Timothy Geithner talk Thursday as meetings start in Washington.

    At a September 2009 summit in Pittsburgh, the leaders of the G-20 industrial and developing nations committed to “rebalance” global growth, so that it relied less on U.S. consumer spending. With Americans tightening their grips on their wallets, new sources of growth would have to be found.

    In practice, that meant countries with big current-account surplusesChina and Germany in particularwere expected to boost consumer spending and import more, while the U.S. was expected to reduce its current-account deficit by exporting more to those countries and others. The current account is the widest measure of trade flows and includes international investment income.

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    The U.S. deficit and the Chinese surplus are roughly similar to where they were during the Pittsburgh summit. “Global demand rebalancing is not progressing,” the International Monetary Fund said this week. The IMF, which acts as a scorekeeper for the G-20, stressed that China and other surplus countries need to do more to boost domestic demand. It also warned that China’s surplus could soar over the coming years.

    The G-20 finance ministers are sure to recommit themselves to rebalancing. But the effort has become bogged down in procedural wrangling, prompting concerns the group will turn into yet another international talk forum that is short on action. The most officials hope to accomplish Friday is a deal on how to measure whether a country’s policies are worsening global imbalances. In coming months, the finance ministers are expected to meet again, perhaps twice, to further refine the measures.

    “It’s laborious, it’s tedious, it’s time consuming [and] it seems petty,” French finance minister Chrstine Lagarde said Thursday. But over time, she said, it could produce a process that helps countries “coordinate our policies so we can actually reduce imbalances.”

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    If it all works out, the G-20 heads of state meeting in Cannes, France, in November would have a report highlighting which countries and which policies are most at fault for continuing global imbalances. Then the leaders would pressure the offenders to change course. The G-20 doesn’t envision any enforcement mechanism, so countries could simply ignore the results.

    “You rely on moral suasion,” said Edwin Truman, a former Obama Treasury adviser who is now at the Peterson Institute for International Economics, and has suggested ways to add sanctions. Dogging the G-20, he said, is the question of “how much meat there is on the bones?”

    Part of the reason for the stunted progress is a wariness in Beijing that rebalancing is just another name for U.S-inspired pressure on China to boost the value of its currency, the yuan. The U.S. Treasury does indeed argue that faster appreciation would help Beijing rebalance by making imports less expensive in yuan terms.

    China bought itself some goodwill in June 2010, shortly before another G-20 leaders’ summit, when it announced it would let its currency float somewhat. But since then, the yuan has risen just 4.5% against the dollar and has fallen about 12% against the euro, opening China to continuing political pressure.

    China’s leaders have formally recognized since at least 2007 that they need to boost consumer spending to sustain growth. But they have had a hard time making that decision stick, given the power of exporters and their champions in the bureaucracy who lobby for a cheaper currency, and the leaders’ own hesitation to ditch what has been a winning economic strategy.

    He Jianxiong, China’s IMF representative, said Beijing’s economic policies are moving in the right direction, particularly since the global crisis of 2008.

    Write to Bob Davis at bob.davis@wsj.com

    The Wall Street Journal/AC

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