- Associated Press - Saturday, February 19, 2011

PARIS (AP) — The world’s dominant economies have reached a compromise deal on how to track imbalances in the global economy that have been blamed for exacerbating the financial crisis, French Finance Minister Christine Lagarde said Saturday.

Finance ministers and central bank governors from the Group of 20 rich and developing countries managed to get China to agree on a list of five yardsticks for imbalances, by softening the criteria for measuring current account surpluses.

“The negotiations have been frank, sometimes tense,” said Lagarde, but in the end a compromise was reached.

Interest payments for China’s foreign currency reserves — the world’s largest — will be excluded from the calculation of the current account balance, which measures trade and capital flows in and out of a country, one official said. That makes the indicator a mix between current account balance — the indicator most countries wanted — and trade balance — the indicator China had been pushing for.

The breakthrough was reached thanks to intense lobbying of China by Germany and France, said one official, who spoke on condition of anonymity.

The other four indicators are public and private debt levels, currency reserves and real effective exchange rates.

The deal is a partial success for France, which holds the presidency of the G-20 this year. However, the more difficult steps of agreeing at what point imbalances actually become dangerous and how they can be mitigated were left for later meetings.

To underline the obstacles ahead, German Finance Minister Wolfgang Schaeuble — whose country’s current account surplus is even bigger than China’s as a proportion of its economic output — said Saturday that he would resist any firm numerical targets to be attached to the indicators.

The G-20, which became the key international forum for economic decision-making during the financial crisis in 2008 and 2009, is struggling to retain its relevance as some parts of the world are starting to recover while others are still lagging behind. Emerging markets like China and Brazil exited the crisis in much better shape than more traditional economies like the U.S., Europe and Japan.

Lagarde had warned her counterparts that failure to tackle dangerous imbalances would lead the world straight into another crisis, while President Nicolas Sarkozy said the complacency shown by some governments could lead to the death of the G-20.

There is broad agreement within the group on the need for countries such as China to consume more, save less and let their currencies strengthen to become less reliant on exports for growth. But the questions of how fast, how to go about it and the role of U.S. policies have caused divisions.

At the heart of the discussions is the recognition that a decades-long global economic order centered on the U.S. buying exports from the rest of the world and running huge trade deficits while countries such as China, Germany and Japan accumulate vast surpluses is no longer tenable in the aftermath of the crisis.

The attempt to give the world economy an extreme makeover has gotten some of its momentum from the rise of countries such as India, China and Brazil to become economic and political giants in their own right. The G-20 meetings themselves are a sign of how much things have changed since the crisis. They symbolize the end of a system in place since the 1940s in which the world economy was managed largely by a handful of rich nations led by the United States, Europe and later Japan.

The forum, established in 1999, is a disparate combination of rich nations, developing economies, rising powers and consumers and producers of natural resources. The European Union is also a member.


Jamey Keaten contributed to this report.

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