WRAPUP 5-U.S. plan for trade targets hits G20 headwinds

* G20 members push back against U.S. idea of numerical goals

* Russia, Japan, Germany oppose plan aimed mainly at China

* China silent but also opposed, says G20 source

* Ministers want deal for leaders to sign in Seoul in Nov

By Abhijit Neogy and Luciana Lopez

GYEONGJU, South Korea, Oct 22 (BestGrowthStock) – The United States
struggled on Friday to win backing for a proposal to set limits
on external imbalances as a way of pressing countries with
surpluses such as China to let their exchange rates rise.

In a letter to fellow finance ministers of the Group of 20
leading economies, U.S. Treasury Secretary Timothy Geithner said
countries should implement policies to reduce their current
account imbalances below a specified share of national output.

Japanese Finance Minister Yoshihiko Noda said Geithner,
backed by host South Korea, proposed limiting surpluses and
deficits on the current account — the broadest measure of trade
in goods and services — to 4 percent of gross domestic product.

But the plan met with a cool reception on the first day of a
two-day meeting meant to smooth the path for a G20 summit in
Seoul on Nov. 11-12.

Big exporting countries that habitually run chunky trade
surpluses led the opposition.

A G20 source said China was against any limits on
imbalances, German Economy Minister Rainer Bruederle warned of a
throwback to “planned economy thinking”, and Russian Deputy
Finance Minister Dmitry Pankin said a draft communique to be
issued on Saturday would steer clear of numerical targets.

“The communique is very politically correct. There’s nothing
sharp in it,” Pankin said. “In the long term the focus should be
on the exchange rates reflecting market conditions. Excessive
state interference in currencies should be avoided.”

Noda also voiced scepticism. “We doubt whether rigid
numerical targets should be set. But when checking the progress
in rectifying imbalances, that might be an idea,” he told
reporters.

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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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DOUBTS ABOUND

The criticism underscored the difficulties facing the G20 as
it strives to put the world economy on a more stable footing and
defuse currency tensions that economists fear could trigger
trade wars.

While the G20 won praise for coordination of stimulus
packages during the global financial crisis, its unity has been
tested by low growth in rich countries and attempts by some
emerging market economies to preserve export competitiveness by
holding down their exchange rates.

Saudi Arabia, Germany and Russia are the G20 members with
the biggest current account surpluses, but China is the chief
culprit in Washington’s eyes — and the unspoken target of
Geithner’s letter — because of massive currency market
intervention to keep a lid on the yuan.

Beijing has amassed $2.65 trillion in official currency
reserves as a consequence, and prompted the U.S. House of
Representatives to pass a bill threatening retaliation unless
China lets its currency off the leash to reduce its huge trade
surplus with the United States.

G20 countries, Geithner said, “should commit to refrain from
exchange rate policies designed to achieve competitive advantage
by either weakening their currency or preventing the
appreciation of an undervalued currency”.

Chinese officials made no public comment, but a G20 source
said Beijing was opposed to any communique that explicitly bound
countries to limits on current account balances or any other
form of rules on currency policy. [ID:nTOE69L0A8]

The source, with direct knowledge of the talks, said the
group of rich and emerging economies was split not only on the
question of currencies but also on how to give poorer countries
more voting power at the International Monetary Fund.

“Positions are still very much divided. It’s a rift down the
middle on both issues,” the source said, predicting “bland”
language in the closing communique to paper over the cracks.

LOOKING FOR CONSENSUS

Not everyone rejected the U.S. gambit out of hand.

“At a time when people are talking about currency wars, the
merit of Geithner’s proposal is that it shifts the discussion
back to the macroeconomic framework,” a French official said.

Jim Flaherty, Canada’s finance minister, said setting
numerical targets was a step in the right direction.

“There’s a desire to reach consensus, to be collaborative,
to move in the direction of an action plan that we can present
to our leaders so that they can adopt it when they meet here in
a couple of weeks,” he said.

But many emerging market policymakers blame lax U.S.
policies for the global financial crisis. They also fear
Washington is prepared to debase the dollar by flooding the
banking system with cash to try to breathe life into the
stuttering U.S. economy.

Expectations that the Federal Reserve will crank up the
dollar printing presses has sent a tide of money pouring into
emerging markets, boosting their currencies and asset prices and
complicating the conduct of fiscal and monetary policy.

Brazil and Thailand have responded by introducing controls
on capital inflows, while other central banks have stepped up
currency interventions. [ID:nN18280200]

“We must demonstrate that we can, in the immediate term,
cooperate to avert what many are now terming a currency war. We
must find a solution to this by the Seoul summit,” Indian
Finance Minister Pranab Mukherjee said.

(Additional reporting by Louis Egan, Daniel Flynn, Yoo
Choonsik, Gernot Heller and Tetsushi Kajimoto; Writing by Alan
Wheatley; Editing by Tomasz Janowski, John Stonestreet)

WRAPUP 5-U.S. plan for trade targets hits G20 headwinds