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October 28, 2010 4:53 pm
Lee Myung-bak, South Korea’s president, says he is optimistic the Group of 20 leading economies can forge firmer guidelines on limiting trade imbalances, though he played down prospects of agreeing specific numerical targets at next month’s Seoul summit.
Mr Lee also said the G20’s broad rules to prevent currency and trade conflict did not mean that nations should be denied leeway to act unilaterally on controlling capital flows.
Seeking to avert a potential conflict over currency levels, G20 finance ministers meeting in the South Korean city of Gyeongju last weekend agreed to consider “indicative guidelines” for reining in current account imbalances. Germany led opposition to proposals to limit current account surpluses and deficits to 4 per cent of gross domestic product.
“Right now I do not know if I can tell you whether or not we are going to work towards a specific numerical target,” Mr Lee told the Financial Times. He will host the Seoul summit on November 11 and 12.
Advisers said the outcome was likely to fall short of specific targets but would instead commit countries to developing mechanisms to keep current accounts – and perhaps other factors, such as the savings rate or real exchange rates – within certain limits. The International Monetary Fund will monitor the process.
Mr Lee conceded the Seoul summit would probably be marked by “lots of dissent”, but he predicted that Germany and China would co-operate in crafting stronger rules.
He said he “fully shared” the concerns of Manmohan Singh, India’s prime minister, that the G20 risked being divided between developed and developing nations, with emerging markets struggling to control a carry trade fanned by ultra-low interest rates in the west.
South Korea’s central bank this week floated the possibility of introducing restrictions aimed at cooling what its sees as destabilising investment flows. But Mr Lee said these should not be seen as “capital controls”. They should be called “macroprudential policies” under the umbrella of the G20, he said, adding: “All measures are part of international co-operation rather than an exception.”
Richard Yetsenga, HSBC’s head currency strategist in Hong Kong, said this caution about terminology formed part of a broader trend. “It is amazing how little the term capital control appears. Countries seem to be favouring language which makes the introduction of measures less controversial,” he said.
Brazil, Indonesia and Thailand have sought to limit the disruptive effect of inflows, but Mr Lee suggested their attempts to tweak regulations fell within the scope of acceptable unilateral action. “I won’t define any country's measures as capital controls,” he said.
“I do not envisage any country taking actions that can be regarded as being blatantly and obviously out of line with international co-operation principles.”
Mr Lee declined to define what the limits to unilateral action might be or to respond to criticism of South Korean and Japanese intervention in the currency markets. Of Germany’s objections to what would be voluntary restraints on exports, he said: “I am very confident and hopeful the Germans will understand that international co-operation really is in their interests.”
He added that China understood the need to “take part in ensuring sustainable and balanced growth” and that broadening the debate from a narrow focus on the renminbi was helping to secure Chinese support. “We all know the Chinese were pushing back and were saying currency was not the sole question to be dealt with,” he said.
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