G-20 Meeting Puts Off Hard Calls on Trade Imbalances

SEOUL, South Korea — Leaders of the world’s biggest economies agreed on Friday to curb “persistently large imbalances” in saving and spending but deferred until next year tough decisions on how to identify and fix them.

 

In agreeing to a broad examination of imbalances and their causes, deficit countries like the United States and Britain are opening themselves to criticisms of their debt and deficits. While Mr. Cameron’s Conservative government has pursued a wrenching program of fiscal austerity, Mr. Obama will face a divided Congress locked in bitter disagreement over spending and tax measures.
The assessments to be conducted by the I.M.F. are likely to examine not only exchange rates and trade flows but also variables like labor costs, savings rates, demographics, investment and commodities.

Perhaps the only big winner from the meeting was the I.M.F. The G-20 leaders ratified changes in the governance of the fund that will expand representation of emerging-market countries, endorsed the expansion of I.M.F. lending programs that can be used by countries facing a sudden liquidity crunch, and empowered the fund to spearhead the process for fixing imbalances.

“This was more a G-20 of debate than a G-20 of conclusion,” said Dominique Strauss-Kahn, managing director of the I.M.F., who said the G-20 had moved from a crisis phase, in which nations agreed to stimulate their economies, avoid protectionism and overhaul financial regulations, to a postcrisis era of difficult choices.

“In the first phase, cooperation, which is the goal of the G-20, was mandatory,” he said. “In the second phase, which is now opening, cooperation is now voluntary.”

The I.M.F. has offered that the principal rationale for cooperation is to fix the imbalances, concluding that global economic growth will be 2 percentage points higher through 2014 if major economies coordinate their policies rather than acting alone.

“I don’t think we can say it’s a problem that has been put aside, with an unlimited timeline, not knowing when it will be done,” Mr. Strauss-Kahn said. “But what is true is that it’s a complicated problem.”

He said both the fund and critics of the G-20 would like “quick decisions,” but the process would take time.

The basic tension, it seemed, is that countries are going their own ways while acknowledging that they probably should not. “Countries are sovereign entities,” Mr. Strauss-Kahn said. “They want to have their own policies. At the same time, they understand that more and more in the globalized world, they need to take into account their spillovers and interactions and can’t act independently.”

Trade imbalances were not the only item on the G-20 agenda. The leaders also endorsed the new bank capital standards known as Basel III; backed an American-led push for overhauling financial regulations; called for completion of the long-delayed Doha round of world trade talks; and declared that the development of poorer countries was significant not merely for reasons of social justice but also for generating demand to sustain the recovery.

South Korean officials, proud of being the first emerging-market country to host the G-20 leaders, tried to put the best face on the agreement. “We are all in one boat of destiny,” President Lee Myung-bak said.

Hyun Song Shin, a professor at economics at Princeton University who has been a top adviser to Mr. Lee, said in an interview that his country had served as a bridge between two economic giants. “We’ve had a breakthrough — we shifted the debate away from just exchange rates to one about macroeconomic imbalances,” Dr. Shin said. “That’s a shift the U.S. and China could sign on to.”

 

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Lee Su-hyun and Mark McDonald contributed reporting.