WRAPUP 5-G20 inks pact to avert trade war, seals IMF power shift

* G20 vows to “refrain from competitive devaluations”

* Pledges to keep current account balances sustainable

* Emerging countries get bigger stake in IMF

* U.S. Treasury chief Geithner heads to China for talks

By David Lawder and Yoo Choonsik

GYEONGJU, South Korea, Oct 23 (BestGrowthStock) – The Group of 20
major economies agreed on Saturday to shun competitive currency
devaluations but stopped short of setting targets to reduce trade
imbalances that are clouding global growth prospects.

At a meeting in South Korea, G20 finance ministers recognised
the quickening shift in economic power away from Western
industrial nations by striking a surprise deal to give emerging
nations a bigger voice in the International Monetary Fund.

A closing communique contained no major policy initiative
after a U.S. proposal to limit current account imbalances to 4
percent of gross domestic product, a measure aimed squarely at
shrinking China’s surplus, failed to win broad enough backing.

Indeed, the United States itself came under fire from Germany
and China for the super-loose monetary policy stance it has
adopted to try to breathe life into the sluggish U.S. economy.

German Economy Minister Rainer Bruederle said he had made
clear that easing was the wrong way to go.

“An excessive, permanent increase in money is, in my view, an
indirect manipulation of the (foreign exchange) rate,” he said.

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For a PDF report “Currencies: Race to the bottom”
http://r.reuters.com/gez77p

Reshaping financial regulation: http://r.reuters.com/zys68p

Package of graphics on currencies, trade and monetary policy:

http://r.reuters.com/deh58p

Interactive G20 graphic: http://link.reuters.com/men39p

Related stories: [G7/G8]
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HEADING FOR CHINA

The main aim of the two days of talks, which precede a G20
summit in Seoul on Nov. 11-12, was to ease currency strains that
some economists feared could escalate into trade wars.

Developing countries are worried that Washington, by flooding
the U.S. banking system with cash, is pumping up their asset
prices and exchange rates, thus undermining the competitiveness
of the export industries on which they rely for growth.

China, among others, frets that the U.S. policy stance will
debase the dollar, the lynchpin of the global economy.

In a thinly veiled reference to the United States, the G20
statement said advanced countries, including those with reserve
currencies, would be vigilant against excessive volatility and
disorderly movements in exchange rates.

Washington, by contrast, is frustrated over the refusal of
China in particular to let its currency rise to a level that
reflects its growing economic power and would help reduce its big
trade surplus with the United States.

“If the world is going to be able to grow at a strong,
sustainable pace in the future… then we need to work to achieve
more balance in the pattern of global growth as we recover from
the crisis,” U.S. Treasury Secretary Timothy Geithner said.

U.S. officials were pleased that the communique committed G20
members to “refrain from competitive devaluations” of their
currencies and to pursue a full range of policies to reduce
excessive external imbalances.

Geithner will keep up the pressure on Sunday for a stronger
yuan when he holds talks in Qingdao, China, with Vice-Premier
Wang Qishan, who has broad responsibility for economic policy.

“The content of the G20 statement is generic and broadly in
line with expectations, but this should not detract from the fact
important progress was made in giving emerging market countries a
greater voice in the IMF,” said Claudio Piron, a currency
strategist at Bank of America Merrill Lynch in Singapore.

IMF SHAKE-UP

Despite the sniping from Germany and China, whose finance
minister demanded responsible policies from issuers of major
reserve currencies — code for the United States — host South
Korea put an optimistic spin on the outcome of the meetings.

“This will put an end to the controversy over foreign
exchange rates,” said Finance Minister Yoon Jeung-hyun.

South Korea was also able to point to the deal to shift more
than 6 percent of the IMF’s quotas — membership subscriptions
that help determine voting power — to emerging economies whose
clout in the Fund has not kept pace with their economic ascent.

Europe will give up two seats on the fund’s 24-strong
Executive Board.

IMF Managing Director Dominique Strauss-Kahn called the
agreement historic. “This makes for the biggest reform ever in
the governance of the institution,” he said.

As part of the agreement, China will overtake traditional
powerhouses Germany, France and Britain to become the third most
powerful member of the IMF, up from sixth spot now. India will
also wield more power in the fund.

“Our complaint was that the quota share should reflect ground
reality and economic strengths currently. Otherwise, it would
have eroded the credibility of the institution. That has now been
corrected,” Indian Finance Minister Pranab Mukherjee said.
(Additional reporting by Louise Egan, Luciana Lopez, Toni
Vorobyova, Daniel Flynn, Gernot Heller, Fiona Shaikh, Langi
Chiang, Rachel Armstrong, Vidya Ranganathan and Tetsushi
Kajimoto; Writing by David Chance and Alan Wheatley; Editing by
Tomasz Janowski)

WRAPUP 5-G20 inks pact to avert trade war, seals IMF power shift