G20 reaches deal on tracking imbalances in economy

PARIS - 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 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.

Lagarde said the G20 members succeeded where talks in Seoul failed because the "balanced compromise doesn't stigmatize any one country."

"It includes a panoply of indicators that will allow us to measure the strengths and weaknesses of each member's economic policies without discriminating against or stigmatizing anyone," Lagarde said.

The indicators also include public debts and deficits and private debt levels and savings rates. Exchange rates, long a sticking point in Chinese-U.S. relations, were not included in the list, but they will be taken into consideration as part of the current account analysis.

Foreign currency reserves were excluded from the list, Lagarde said. Other officials said they survived under the oblique heading of "other policies."

With agreement on what to measure, work will now begin on the more difficult task of setting what the G20 calls "indicative guidelines" against which to measure the each of the criteria. Lagarde said the goal is to agree on this at the next G20 finance ministers meeting in Washington in April.

Asked whether the difficulty in deciding the list of indicators presaged even more difficult talks over thresholds and enforcement, Lagarde said "I take things one day at a time. If it is difficult, it will be difficult."

The deal is a partial success for France, which holds the presidency of the G20 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 G20, 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 G20.

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 centred 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.