US Fed decision clouds G-20 debate, as Obama arrives in Seoul

| Friday November 12, 2010 00:00

Heading into the summit of the Group of 20 economic powers, U.S. officials have pushed for agreement on detailed guidelines for curbing the trade surpluses of export giants like China and Germany and averting a currency war among countries looking for a trade advantage.

Obama landed in the South Korean capital at 6:40 p.m. Wednesday local times, after visiting Indonesia and India as part of a 10-day Asia trip.

World leaders share Obama's overall aims of bringing trade flows into better balance and curtailing recent clashes over currency values. U.S. officials had hoped, in particular, that the summit would prompt China to allow its currency, the yuan, to rise in value on world markets, leading the Chinese to import more and export less.

But the effort to reach an international consensus is running into last-minute difficulties because of what critics say is a unilateral move by the Fed to boost the flagging U.S. economy.The Fed's decision, in essence, to print $600 billion and pump it into the economy through Treasury bond purchases has drawn fire from foreign leaders, notably German Finance Minister Wolfgang Schaeuble, who say it amounts to currency manipulation.

The action seeks to lift the U.S. economy in several ways, including by lowering interest rates, boosting the stock market and weakening the dollar, which would make U.S. exports more attractive.Coming into the meeting, hopes have dimmed that the G-20 will go beyond general principles on trade and currency and add what U.S. officials have characterised as 'meat on the bones.'

'We were not able to come up with the specifics,' South Korean President Lee Myung-bak, the meeting's host, said in an interview. 'That will be left to a working group. It will take some time.' Discussions among the leaders were scheduled for Thursday (yesterday) and Friday (today), with preliminary G-20 sessions that begun on Wednesday.

The Obama administration proposal, endorsed by G-20 finance ministers last month, calls for the International Monetary Fund to evaluate how each nation's policies help or hurt others. Even if the details of this programme were agreed upon by world leaders, it remains unclear how nations could be forced to revise their policies if they run afoul of the IMF because there is no enforcement mechanism.

'The critical question is when the G-20 will move beyond platitudes . . . and on to something concrete, something that might prompt some member of the G-20 to deviate from the decisions it would otherwise make', said Phil Levy, an analyst at the American Enterprise Institute. The world leaders also face a challenge in determining what exactly balanced trade would look like  (Washington Post)