Politeía Digest

Quis custodiet ipsos custodes?

G-20 Sets Plan on Imbalances

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By Sudeep Reddy and Bob Davis

WASHINGTON—The Group of 20 industrial and developing nations inched forward Friday with a plan to measure whether member nations are causing imbalances that could pose risks to the global economy.

Finance officials from the group’s member economies also agreed at a meeting here to take a closer look at what they called currency misalignments, a move clearly aimed at frequent complaints about an undervalued Chinese yuan.

Finance ministers and central bankers said in a communiqué that seven of the world’s largest economies would have their policies reviewed by the group in the coming months. The International Monetary Fund will do the first review of the nations involved—the U.S., Japan, Germany, China, France, the U.K. and India. Then G-20 officials will take a closer look, probably by the October IMF meetings in Washington.

“We’ve made huge progress in relation to the framework for growth,” said Christine Lagarde, the finance minister of France, which leads the G-20 this year.

The group said the countries would be examined for economically destabilizing policies, such as large government budget deficits and debt, high personal saving rates and debt, or big trade surpluses or deficits. The ministers also settled on approaches for evaluating the causes of the imbalances and barriers for reducing them.

But it is far from clear that all the discussions will ultimately yield changes in policies. The G-20 doesn’t have any way to enforce its findings and the incentive to cooperate has dissipated with the end of the global financial crisis.

“There’s an uneven pattern in the recovery,” said Domenico Lombardi, a Brookings Institution economist. “Now, the incentives are not so well aligned.”

The agreements reachedFriday also underscore the important important role of the IMF in the G-20 evaluations. Essentially, the IMF acts as a scorekeeper, assessing how nations meet the G-20 benchmarks. The IMF will conduct its evaluations based on methods the G-20 members developed Friday. G-20 countries then are supposed to press those members singled out by the IMF to change their policies.

Ultimately, heads of state of the G-20 nations, who meet in November in Cannes, France, will be left to persuade offenders to change course. “These are sovereign nations and will be accountable to their own political processes,” said Lael Brainard, U.S. Treasury undersecretary for international affairs. Read more in The Wall Street Journal.

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Written by Theophyle

April 17, 2011 at 8:06 am

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