Geithner moves to soothe G20 currency tensions

Geithner moves to soothe G20 currency tensions

World leaders gathered in Seoul for a two-day summit hoping to move beyond broad promises of economic cooperation, but days of rancorous debate appears to have undone much of the G20 unity forged in the throes of a global crisis in November 2008.

Adding fuel to an already heated debate over the U.S. Federal Reserve's bond-buying spree to revive the economy, former U.S. Federal Reserve Chairman Alan Greenspan said the United States was pursuing a policy of weakening the dollar.

"The U.S. will never do that," Geithner shot back a few hours later in an interview with CNBC. "We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy."

The Group of 20 club of big rich and emerging economies had hoped to use the summit to soothe tensions over foreign exchange rates that have been created by sharply divergent growth rates.

U.S. President Barack Obama urged his peers to put aside differences and follow through on previous agreements to even out imbalances between cash-rich exporting nations and debt-burdened importers.

Thursday's agenda included dozens of bilateral meetings, but formally kicks off with a working dinner on Thursday night.

Behind the scenes, negotiators squabbled over the language in a closing statement to be issued at the summit's conclusion on Friday. The final version may not venture far beyond agreements reached by G20 finance ministers last month, yet it was still proving difficult to agree on the wording.

Kim Yoon-kyung, spokesman for Korea's G20 summit committee, said deputies made progress on less controversial matters such as reforming the International Monetary Fund but were far apart on core issues of currencies and imbalances.

"The gap was so wide they were unable to agree on today's meeting schedule," he said at a press briefing.


South Korean President Lee Myung-bak said a "little bit" of progress had been made since the October finance ministers meeting in Gyeongju, South Korea, but deep divisions remained over how best to reduce current account imbalances.

Leaders will discuss it at Thursday's dinner, he said.

"We had reached an agreement (at Gyeongju) despite scepticism that no agreement would be reached because of a divide in opinion between U.S., China, Europe and other countries," he said.

An idea floated by Geithner earlier for numerical targets to be set for for trade imbalances has now been taken off the table.

A draft of the final communique obtained by Reuters showed the leaders would back the idea of "indicative guidelines" for the reduction of current account imbalances. However, they were undecided on whether these would be based on "measurable" indicators or more vaguely "quantitative and qualitative".

The draft showed they would agree to "refrain from competitive devaluation" of currencies, but were debating whether to include the words "competitive under-valuation", a reference to the U.S. view on China's currency policy.

China's yuan, also known as the renminbi, rose 0.25 percent on Thursday and has climbed almost 3 percent since Beijing loosened its grip on the tightly managed currency in June. Washington has welcomed the slow-but-steady appreciation, although it has said more movement is needed.

Ireland's deepening debt troubles posed another potential problem for the G20, which promoted this summit under the banner of "Shared Growth Beyond Crisis". Ireland's fragile government is battling to prove it does not need a Greek-style rescue to help it reduce the worst budget deficit in Europe.

Protests were set to intensify in the Korean capital on Thursday, although police set up a security corridor around the summit site and planned to keep disruptions far from the leaders.

There have been hundreds of applications for rallies, mostly by small groups, with a mass rally involving possibly tens of thousands scheduled for Thursday afternoon.

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