Asian nations balk at U.S. current account remedy
by The Canadian Press
US Treasury Secretary at APEC meeting meets resistance to raft of suggested global economic fixes.
KYOTO, Japan: U.S. Treasury Secretary Timothy Geithner, meeting with counterparts from around the world this weekend, faces a tough task selling his formula for mending fissures in the global economy as nations seek ways to avoid another downturn.
The two-day gathering of finance ministers from the 21-member Asia-Pacific Economic Cooperation (APEC) kicked off Friday and follows a Group of 20 meeting last month in South Korea, where finance heads and central bankers vowed to avoid using their currencies as trade weapons.
They also promised to establish a way to measure the reduction of destabilizing trade gaps, seen through figures such as surpluses and deficits in the current account—a broad indicator of a country’s trade and investment.
At the heart of the problem is the huge gap between the U.S., which buys far more than it sells to the rest of the world, and developing countries, such as China, which are running big trade surpluses.
The Obama administration says that China’s undervalued currency, the yuan, contributes to strains in the global economy because it gives Beijing an unfair trade boost by making Chinese goods cheaper in the U.S. and elsewhere. Meanwhile, emerging economies like Brazil blame both the U.S. and China for keeping their currencies weak.
APEC is comprised of countries that border the Pacific Ocean, including advanced economies such as the U.S., Canada, Japan and Australia and emerging economies such as China, Vietnam and Mexico. Because this weekend’s APEC meeting is sandwiched between two G20 gatherings, it will offer officials another opportunity to figure out how to spark the global economy.
Geithner had pushed in a letter to last month’s G20 meeting for a commitment to polices that would reduce current account and trade gaps "below a specified share" of gross domestic product "over the next few years."
Ultimately, however, the G20 could only agree that progress would be "assessed against indicative guidelines to be agreed," reflecting the opposition of some export-reliant countries such as Japan.
Exactly what those guidelines will be remains a point of contention, and an agreement is unlikely in time for the G20 leaders summit on Nov. 11-12 in Seoul, South Korea.
A senior Treasury official said last week in Washington that Geithner would use APEC to reach out to the eight G20 members in the group, as well as "a broader group of economies beyond the G20, many of which have been pursuing export-led growth strategies that have resulted in very large and persistent current account surpluses and significant accumulation of foreign currency reserves."
But Southeast Asia, made up of export-reliant nations, headed into the meeting skeptical of Geithner’s original proposal. Thailand’s Finance Minister Korn Chatikavanij is expected to submit a statement on behalf of the Association of Southeast Asian Nations, whose members account for a third of APEC.
The group "welcomes the constructive suggestions by the U.S." and supports policy co-ordination but focusing purely on the current account would hurt trade, according to a draft of Chatikavanij’s statement obtained by The Associated Press.
Southeast Asia "has concerns that specific targeting of the current account could lead to measures being employed that may be detrimental to the principal of free trade," it said.
China, Asia biggest economy, also expressed opposition.
"An artificial setting of a numerical target cannot but remind us of the days of the planning economy," said Chinese Vice Foreign Minister Cui Tiankai. "We believe the target for current account misses the point."
Geither may also face questions about the Federal Reserve’s latest move to stimulate the U.S. economy known as quantative easing. The Fed announced Wednesday that it will sink $600 billion into government bonds, hoping to drive interest rates even lower and invigorate a sluggish economy.
Some governments have expressed concern that lower U.S. interest rates will result in more money flooding into their markets seeking higher returns, pushing up exchange rates and hurting exports by making their goods more expensive. Expectations of the Fed’s move also contributed to weakening the U.S. dollar, adding to global currency tensions.
"If the domestic policy is optimal policy for the U.S. alone, but at the same time it is not an optimal policy for he world, it may bring a lot of negative impact to the world. There is a spill over," said China’s central bank chief Zhou Xiaochuan.
"We have to solve this problem by reforming the international currency system," he said.
Brazil’s finance minister, Guido Mantega, also criticized the Fed’s move, saying it would devalue the dollar and hurt Brazil and other export-dependent economies.
Geithner is scheduled to arrive in Kyoto Saturday, when he will start his day with an informal breakfast with Southeast Asian finance ministers.
The chair of the Kyoto meeting, Japan Finance Minister Yoshihiko Noda, said sustaining APEC’s momentum would be among the top agenda items.
"I see the big task at the meeting is to discuss ways to encourage growth within the region," Noda said. "We will talk mainly about issues such as economic policy to achieve balanced growth, fiscal management as the population ages and how to invest into infrastructure necessary the economic growth."
AP Business Writers Joe McDonald in Beijing and Kelly Olsen in Seoul, South Korea contributed to this report.
© 2010 The Canadian Press