WRAPUP 5-US plan hits opposition at G20, FX accord remote

* G20 source sees little chance of strong currency accord

* U.S. wants G20 to agree “norms” on exchange rate policy

* Clutch of countries reject targets for current accounts

* Geithner sees major currencies “roughly in alignment”

(Adds Caterpillar on trade, tax policy, U.S. context)

By Abhijit Neogy and Toni Vorobyova

GYEONGJU, South Korea, Oct 21 (BestGrowthStock) – G20 officials are
unlikely to reach an accord rejecting currency devaluations and
capping current account balances, an informed source said on
Thursday, after U.S. proposals ran into stiff opposition.

The swift rebuff of a U.S. call for numerical targets for
“sustainable” trade surpluses and deficits underscored
difficulties facing Group of 20 finance ministers gathering in
South Korea to try to defuse tensions over currencies and
economic imbalances.

The G20 source, who has direct knowledge of deliberations
at the meeting, said the proposals had not found favour with
India, China and other emerging economies, or even the likes of
Germany, which has a large current account surplus.

In an interview with the Wall Street Journal, U.S. Treasury
Secretary Timothy Geithner called for an agreement on exchange
rate policy “norms.”

“Right now, there is no established sense of what’s fair,”
he told the paper. “We would like countries to move toward a
set of norms on exchange rate policy.”


For a PDF report “Currencies: Race to the bottom”

Reshaping financial regulation:

Package of graphics on currencies, trade and monetary
policy: http://r.reuters.com/deh58p

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

Related stories: [ID:nTOE69K01G]


Washington is also floating the idea of specific targets
for current account balances. This would build on a G20 pledge
a year ago to tilt growth away from exports in fast-growing
surplus countries, such as China, and to boost savings in rich
deficit economies, including the United States.

“We are exploring whether we can agree to commit to keep
the external imbalances to levels that are more sustainable,”
Geithner said.

The United States faces pressure from all sides on its
trade policies. Some lawmakers in Congress are pushing
legislation that would punish China for keeping its currency
undervalued to gain a trade advantage. Big multinational U.S.
companies want a hands-off approach.

Heavy equipment maker Caterpillar Inc (CAT.N: ) warned
Washington to “avoid policy decisions that may create trade
tensions between the United States and other key trading
partners and avoid tax policy that puts U.S. multinationals,
like Caterpillar, at a competitive disadvantage.”

The G20 source said the drafting of a communique would only
begin late on Friday after a first round of meetings between
finance ministers and central bank governors in Gyeongju.

“If the U.S. persists with that line, we will oppose it,”
he said, adding that the final communique would make a rather
“subdued” reference to currencies and current account

French Economy Minister Christine Lagarde said coordination
on currency policy was lacking and that Asia had a vital role
to play. “We can see there are imbalances, that coordination is
at times lacking on policy,” she said in Paris.


Diplomats said Washington was proposing that countries
should aim to limit their surplus or deficit on the current
account — the broadest measure of trade in goods and services
— to 4 percent of gross domestic product.

But German Economy Minister Rainer Bruederle said he was
opposed to numerical goals.

“Macroeconomic fine-tuning and quantitative targets are not
the right approach in our view,” Bruederle told Reuters in
Berlin before leaving for the G20 talks.

Russian deputy finance minister Dimitry Pankin was also
sceptical about the U.S. initiative.

“The United States will try to put the question of exchange
rates and current account balances at the top of the agenda, to
try to press China to make some commitments on this issue. In
my view it is unlikely that they will succeed,” Pankin said.

“Most likely, there will be some general words, along the
lines of ‘let’s all live in peace’. I do not expect much
success in this sphere,” he told reporters.

An Indian finance ministry official gave equally short
shrift to Geithner’s idea of numerical goals.

“I do believe that this has to be looked at more
fundamentally. By artificially linking current account deficit
levels to the GDP you are merely skimming the surface. I am not
sure that this will be supported by very many emerging
economies,” the official told Reuters.


Pankin criticised Washington for piling pressure on
emerging markets to lead a rebalancing when it was loose U.S.
policy settings that were sending capital pouring into
developing economies, generating pressure for their exchange
rates to rise.

“We think that such policies will not come to any good,” he
said. Things would not turn out well unless the United States
cut its budget deficit and tightened monetary policy, he

His forthright remarks contrasted with the emollient note
on exchange rates struck by Geithner, who hopes that, by
preaching currency cooperation, he can coax China into allowing
the value of the yuan to rise more quickly.

Major currencies were “roughly in alignment now,” Geithner
told the Wall Street Journal.

The Treasury chief repeated his view that the yuan, also
known as the renminbi, was significantly undervalued. But he
said that would be corrected over time if the brisker pace of
appreciation witnessed since September were sustained.

“If China knew that if it moved more rapidly, other
emerging markets would move with them, it would be easier for
them to move,” Geithner said.

Countries from Brazil to G20 host South Korea are loath to
allow their exchange rates to rise for fear of losing
competitiveness to China. For its part, Beijing is adamant that
the yuan’s rate of climb must be gradual.

“If the renminbi exchange rate is not stable, companies
will not be stable, employment will not be stable and society
will not be stable,” the People’s Daily, the mouthpiece of the
ruling Communist Party, said in an editorial on Thursday.

The task for finance ministers and central bank governors,
at a two-day meeting starting on Friday, is to paper over such
tensions so they do not mar a G20 summit next month in Seoul.
(Additional reporting by David Lawder in Gyeongju, Gernot
Heller in Berlin and Jean-Baptiste Vey in Paris; Writing by
Alan Wheatley and Mike Peacock; Editing by Hugh Lawson and
Andrew Hay)

WRAPUP 5-US plan hits opposition at G20, FX accord remote