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G20 to tackle crisis warning system

Representatives of the world's 20 leading economies will meet in Washington this week to thrash out a system that would protect the global economy from risks born in individual countries.

world Updated: Apr 14, 2011 07:57 IST

Representatives of the world's 20 leading economies will meet in Washington this week to thrash out a system that would protect the global economy from risks born in individual countries.

After agreeing the broad outline of a deal last February, Group of 20 finance chiefs will tackle the vexing details of the plan, which could prove a tough test of countries' willingness to open themselves up to outside scrutiny.

G20 members will try to determine when debt levels, trade deficits or other indicators point to a systemic risk, with a view to naming and shaming those nations that present the biggest problems for stability.

The United States, Germany, China and Japan are already certain to be on the list, according to a person close to the negotiations, but were likely to have company.

Some analysts say the process is an underhanded way to lead China, finally, to change its export-led economic model and encourage domestic demand.

The other major powers, with the United States at the fore, accuse Beijing of keeping its yuan currency artificially low to boost exports and build up foreign reserves, systematically handicapping its trade partners.

According to a mechanism "which can appear complex and technocratic," as one negotiator put it, guidelines are to be agreed by the G20 that will take into account national or regional circumstances.

Currency issues and reform of the international monetary system were also to figure on the G20 agenda in Washington.

France, which holds the rotating presidency of the powerful group this year, is pushing for a timetable for the integration of the Chinese currency into the basket of currencies used as an international reserve asset by the IMF, the so-called Special Drawing Rights.

The SDR basket currently is based on the dollar, euro, yen and pound.

Including the yuan in the basket would be a strong signal of China's growing role in the economic order.

The G20 finance ministers and central bank governors will start the two-day meetings on late Thursday with an overview of the world economy's recovery from the 2009 recession, clouded by new challenges from Arab revolts and Japan's earthquake disaster.

The outlook of the advanced and emerging economies is expected to be broadly in line with the IMF global economic forecasts released on Monday, which saw the recovery firming but at risk from higher oil prices.

"The global economy is facing new challenges, with unrest in the Middle East and the earthquake in Japan," a delegation member said.

"But the recovery seems to be based on factors that should allow it to resist these shocks," the person said.

For global growth that is "strong, sustainable and balanced" -- the G20 mantra -- the G20 finance chiefs are set to refine their approach to paring harmful imbalances.

They also plan to analyze recent IMF recommendations for the management of capital flows, including for the first time capital controls, which the Fund for years had argued against.

The G20 powwow comes on the sidelines of the IMF and World Bank annual spring meetings that draw officials from the Washington-based institutions' 187 nation members to the US capital.

The Group of Seven advanced economies, which intervened in currency markets to weaken a surging yen after the March 11 earthquake and tsunami calamity in Japan, is to meet in advance of the G20.

In addition to the G7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- the G20 includes fast-growing emerging economies such as the so-called BRICS: Brazil, Russia, India, China and South Africa.

The G20 discussions could feed into France's desire for a "code of conduct" to address excessive private capital flows that have plagued Brazil and other emerging economies.

A proposed tax on financial transactions, a key priority of the French G20 presidency, was endorsed by 1,000 economists from 53 countries in a letter on Wednesday to the G20 finance chiefs.

"This money is urgently needed to raise revenue for global and domestic public goods such as health, education and water, and to tackle the challenge of climate change," the economists wrote.

"Given the automation of payments, this tax is technically feasible. It is morally right."