By Cho Jin-seo
U.S. Treasury Secretary Timothy Geithner proposed the G20 put a 4-percent cap on current account imbalances as a solution to fix the global imbalance without directly touching the currency rate issue, but only to find himself surrounded by skeptics.
Geithner, in leaked letters to other G20 member nations, urged countries to “undertake policies consistent with reducing external imbalances below a specified share of GDP over the next few years.” Multiple reports identified the limit is 4 percent, plus or minus.
His suggestion immediately received cynicism from rich countries with trade surplus ― Germany and Japan ― splitting the old party of G7 into two sides. It is not likely to receive support from China, of course.
It also shows an irony that the United States, a long-time advocate of competitive, free-market economy, is beginning to peek at the supposedly dying idea of planned economy, at a global scale, after realizing that it cannot sustain its obese economic model without taking radical changes.
“G20 countries should commit to undertake policies consistent with reducing external imbalances below a specified share of GDP over the next few years,” he was quoted as saying by multiple news outlets on Friday as he attended the G20 finance ministers’ meeting in Gyeongju. His remark came as the United States has failed to persuade China to do a rapid appreciation of its currency.
Germany and Japan, who are the world’s largest surplus countries along with China, scoffed at this.
In briefings with domestic reporters, Japanese Finance Minister Yoshihiko Noda said that “setting numerical targets would be unrealistic,” according to Bloomberg. German Economy Minister Rainer Bruederle also rejected the Geithner scheme as a “fall back into planned economy thinking,” according to Reuters.
The 4-percent rule was first reported by Seoul Economic Daily, a sister paper of The Korea Times, on Thursday. The Seoul officials said that they do not have a particular stance on this proposal.
The G7 countries, the richest of the G20 including the three nations, reportedly had separate meetings on Friday only to find that they are not in the same boat, despite all the fuss about China-versus-the West currency war.
Now with countries in disarray in regard to the global imbalance, the G20 meeting will need to make a grand bargain in order to make a meaningful agreement until the Seoul Summit on Nov. 11. South Korea, the host, is feeling the burden on its shoulders.
Only the delegation from China seemed to be aloof from all this fuss. According to witnesses, Xie Xuren, the Chinese finance minister, requested Tequila while others sipped gin and tonic at the reception held before the main sessions Friday afternoon. When the ministers headed for Anapji pond for dinner after the day’s session was over, Xie and his fellow Chinese officials did not care to join the conversation with others, instead looked around the ancient pond by themselves while the dinner was being prepared, the witnesses said.
Geithner and the United States was also blamed by Brazil on Thursday that their real worry is the prospect of a weak dollar, not yuan.
The ministers have to produce a joint statement on Saturday, which will be used as basis for November’s summit.
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