India, 6 other largest economies to come under G-20 scanner

The new system outlined in a joint statement Friday after a day of talks among G-20 finance officials will prod nations to take corrective actions when imbalances in such areas as foreign trade or government debt rise to excessive levels.

The agreement is a significant achievement that will maintain the momentum to revive the global economy and prevent future financial crises, French Finance Minister Christine Lagarde told reporters as France heads the G-20 this year.

In the beginning the monitoring process would focus on seven of the world's largest economies but would eventually be broadened to include all nations in the G-20, she said.

Though Lagarde did not identify the seven nations, the group is widely expected to include India, the United States, China, Japan, Germany, France, and Britain. Nations accounting for more than 5 percent of the G-20's gross domestic product will be more rigorously studied given their "greater potential for spillover effects," the statement said.

Canadian Finance Minister Jim Flaherty said the group is "not exactly the G-7 -- you have to include China and India." The G-20 outlined four methods based on structural and statistical approaches that will be used to decide when indicators such as public debt and fiscal deficits and the external imbalance composed of the trade balance and net investment income flows and transfers, appear excessive.

A country identified as having persistently dangerous levels of two of the measures will be subjected to further study and may have remedies suggested.

"The guidelines operate like a net which holds the countries which violate or do not respect" Lagarde said.

The G-20 also agreed to strengthen coordination "to avoid disorderly movements and persistent exchange rate misalignments" and to establish a path to increasing the number of currency that comprise the IMF's Special Drawing Rights.

"The global recovery is broadening and becoming more self- sustained, with increasingly robust private demand growth," the joint statement said. "But downside risks remain."

Unrest in the Middle East and Japan's natural disaster "have increased economic uncertainty and tensions in energy prices," it said, but there is "adequate spare capacity to meet global energy demand."