G20 nations lock horns over path to recovery

THE world’s 20 biggest rich and emerging powers were locked late last night in talks on fixing distortions that threaten global growth, as their leaders kicked off a fractious summit.

There is anxiety that G20 nations could be heading for a return to 1930s-style trade protectionism, with damning consequences for the world economy two years after the start of the global financial crisis.

The United States, striving to recover from its worst economic crisis in decades, locked horns anew with exporting giants China and Germany over a plan to rebalance skewed trade between deficit and surplus countries.

President Barack Obama, grafting to salvage a deal at the G20 after suffering an economy-linked drubbing in US elections last week, said his administration want to boost growth via “prudent” economic policies.

“It is difficult to do that if we start seeing the huge imbalances redevelop that helped to contribute to the crisis that we just went through,” he told a news conference with the summit’s host, South Korean President Lee Myung-Bak.

But controversy is rife in the G20 after the Federal Reserve instituted a $600 billion attempt to reflate the US economy, in a radical monetary step foreign critics say will trigger tit-for-tat currency devaluations.

Chinese officials sought to throw the onus back on the US by arguing Beijing has an “unswerving” commitment to reform its currency regime, but needs stability in the world economy to do it.

“If you’re sick yourself, don’t ask others to take medicine,” commerce ministry spokesman Yu Jianhua said, demanding the US fix its own house first.

In one-on-one talks with Obama, Chinese President Hu Jintao said: “I believe that, with the concerted efforts of all the parties, the summit in Seoul will produce positive outcomes.”

British Prime Minister David Cameron, however, conceded that the G20 was not in a “heroic phase” after its determined response to the 2008 financial crisis, and that it needed to do “a lot more work” on fixing economic imbalances.

Brazil’s president-elect, Dilma Rousseff, a trained economist, condemned Washington’s “weak dollar policy” according to the state news agency Agencia Brasil, saying it “is grave for the entire world. This is an issue that has always caused problems.”

Negotiators have been meeting long into the night all week in Seoul to try to pin down language the G20 leaders can adopt in a closing communique today.

“China is being very difficult in finalising the texts, so there might be brackets left for the leaders to fill in after all,” a German government source said yesterday.

At best, South Korean and German officials said, the G20 may settle for a watered-down deal to task the International Monetary Fund with crafting guidelines to trim the yawning imbalances between creditor and debtor nations.