The United States sought to corral reluctant finance leaders into a deal that would commit emerging markets to cut their current account surpluses and allow their currencies to rise at a meeting on Friday.
G20 finance officials started their formal meetings on Friday with nations from the developing world and Japan dismissing the US proposals which it says are aimed at defusing tensions that economists fear could trigger trade wars.
US Treasury Secretary Timothy Geithner, in a letter to finance leaders that was seen by Reuters, said “countries with persistent surpluses should undertake structural, fiscal and exchange rate policies to boost domestic sources of growth”.
In return, countries such as the US that are running big budget and trade deficits would adopt “sustainable medium-term fiscal targets”.
Geithner’s overtures have been rejected by countries as diverse as India and Japan and markets are sceptical of a universal deal that would address global economic imbalances and tackle attempts by many emerging economies and others to weaken their currencies.
While the G20 won praise for coordination of stimulus packages during the global financial crisis, its sense of unity has gradually evaporated in the face of strains resulting from unprecedented efforts to revive global growth. “There is an action plan, but there is an awful lot of complaints, proposals,” Russian finance official Andrey Bokarev said ahead of the meetings.
A financial source who met with Geithner in South Korea said that the US official had asked countries to limit their current account surpluses or deficits to 4 per cent of gross domestic product, something that few G20 members felt able to accept.
China, India, Saudi Arabia and Russia are all running substantial surpluses while the US is in deficit.
“We need to talk about it first, but numerical targets are unrealistic,” Japanese Finance Minister Yoshihiko Noda said.
The issue of addressing “undervalued” currencies will also tax leaders, although Canadian policymakers said that China had agreed in principle to move towards more foreign exchange flexibility.