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APEC looks to safeguard growth amid US plan tension

Asia Pacific finance ministers will call on countries to rein in large imbalances to safeguard economic growth at an APEC meeting today, as tension builds over a US plan to target trade gaps.

business Updated: Nov 06, 2010 17:11 IST

Asia Pacific finance ministers will call on countries to rein in large imbalances to safeguard economic growth at an APEC meeting on Saturday, as tension builds over a US plan to target trade gaps.

Finance ministers of the 21-nation Asia Pacific Economic Cooperation group met in Kyoto, following on from a G20 summit in South Korea last month in which nations vowed to "refrain from competitive devaluation of currencies".

But fault lines have emerged over a US proposal that G20 members assign a specific limit for their current account surpluses or deficits of four percent of gross domestic product.

Beijing on Friday rejected the plan, setting up a potential showdown at next week's G20 summit in South Korea.

Such a limit would force China, among others, to take steps to rein in its massive trade surplus, an issue at the centre of tensions with the US over the strength of the yuan.

Saturday's meeting will "focus on efforts to support economic growth and development in our region," Australian Treasurer Wayne Swan said, adding that APEC would help deepen policy discussions initiated by the G20.

A draft version of an APEC finance ministers' communique to be released Saturday takes a similar line to a statement released by G20 nations in South Korea last month.

"We will move toward more market-determined exchange-rate systems that reflect underlying economic fundamentals and will refrain from competitive devaluation of currencies," said the draft, cited by Dow Jones Newswires.

The statement also urges developed economies to rein in deficits and surplus nations to reduce their reliance on exports and undertake reforms to boost domestic demand to help rebalance the global economy, Dow Jones said.

Political tensions have been high as nations caught in the US-China crossfire look to protect their export-driven growth and jostle for a trade advantage.

The US, and some export-reliant Asian nations that have seen huge inflows of capital push up the value of their currencies, want China to loosen its tight grip on the yuan.

Beijing, in turn, accuses the Federal Reserve of warping currency markets by maintaining a weak dollar through its loose monetary policy.

APEC ministers from Southeast Asia also plan to raise their concerns over the proposal to target current account imbalances at next week's G20 summit in South Korea, arguing that it could encourage trade protectionism.

Finance ministers from the grouping met with US Treasury Secretary Timothy Geithner in Kyoto Saturday to discuss currencies, Philippines finance secretary Cesar V. Purisima told reporters.

"We talked about several things with the interest of seeing the world continue to grow out of the present situation," he said.

Asian nations cite super-loose US monetary policy as a factor roiling currency markets, hammering the dollar and prompting a wave of speculative money to pour into Asia and drive up regional currencies.

Pressure on the greenback has increased after the US Federal Reserve this week announced 600 billion dollars in further easing measures to pump money into the US economy, a move rounded on by Asian countries including China.

The Fed's announcement, which follows a similar quantitative easing worth about 1.5 trillion dollars during the crisis, has stoked fears of a deluge of speculative cash into emerging markets by players seeking higher non-dollar returns.

Thai Finance Minister Korn Chatikavanij warned on Friday that the latest round of easing measures by the Fed will likely lead to increased capital flows into Asia, and said the issue of currencies will be discussed in Kyoto this weekend.

The Thai baht has appreciated by around 11% against the greenback this year.

First Published: Nov 06, 2010 17:06 IST