G20 Nations Stuggles to Tackle Global Imbalances

Devan Biswas
12 Nov, 2010
New York City

G20 nations issued a statement after a meeting of two days that focused on broad issues of global imbalances and failed to show any concrete plans. The leaders deferred to the concrete steps to the next meeting and said the importance of common indicators to track global developments.

[R]10:00 AM New York – G20 nations issued a statement after a meeting of two days that focused on broad issues of global imbalances and failed to show any concrete plans. The leaders deferred to the concrete steps to the next meeting and said the importance of common indicators to track measures that can highlight the changes in the global flows.[/R]

World leaders after a meeting of G20 nations issued a statement that highlighted the division between consuming nations and emerging nations.

The weak statement lacking in details and prepared after much haggling only highlights broader issues related to trade and financial flows and does not identify the root causes of the imbalances and is silent on any corrective actions.

The need to focus on emerging economies and stimulate world demand was one of the points discussed by leaders. The fact the South Korea was chosen as the venue for the meeting only highlighted the importance of fast growing economies.

The United States proposal to set numerical targets on trade deficits or surplus and setting a target on exchange rate was not accepted by member nations. Germany and China, two other large exporting nations did not agree on trade targets and China resisted any move to make swift adjustments to exchange rate.

The root causes of the imbalances were discussed at the meeting according to the sources in the U.S. and India but countries resisted a common platform only to leave an exit door to pursue policies that are suited for individual nations.

The United States consumes too much and countries in Asia especially China consumes less than it can.

G20 said in the statement that the group will develop guidelines and finance ministers will prepare a “range of indicators” that will help track the imbalances with a view to “preventive and corrective actions.”

The first set of indicators will be ready before the next summit in the next year and IMF will conduct review of imbalances.

The meeting at least created a climate of cooperation among countries that represent about 85% of world economic output that will require more detailed work on exchange rates and trade flows.

The IMF is one of the clear beneficiaries of the meeting as emerging nations are expected to play a larger role and the lending program at the multi-lateral agency will be expanded to offer assistance to countries that are facing sudden liquidity crisis.

Ireland was clearly in focus as the nation struggles with the falling bond values and surging government deficit. The European leaders also discussed the possibility of a rescue plan and the office of Prime Minister Angela Merkel confirmed that European leaders will issue a statement as early as this weekend.

The leaders also discussed the new and tightened capital requirements for banks around the world which have come to be known as Basel III. Wealthy nations showed a greater interest and willingness in developing markets in emerging markets and accelerate social development.

With the demand stagnant in developed world, larger and wealthy nations are increasingly looking at poor nations to expand markets and generate global demand.