G20 leaders head into trade showdown

SEOUL (AFP) – The world's biggest rich and emerging economies intensified a war of words Thursday, hours before the start of a G20 summit that will struggle to iron out serious distortions in global trade.

The United States, struggling to recover from its worst economic crisis in decades, locked horns anew with exporting giants China and Germany over a plan to rebalance skewed commerce between deficit and surplus countries.

Anti-G20 protesters gather near Seoul station on November 11, 2010. AFP

President Barack Obama, grafting to salvage a deal after suffering an economy-linked drubbing in US elections last week, said his administration wanted to boost growth via "prudent" economic policies.

"It is difficult to do that if we start seeing the huge imbalances redevelop that helped to contribute to the crisis that we just went through," he told a news conference with the summit's host, South Korean President Lee Myung-Bak.

"I don't think this is a controversial proposition."

But controversy is rife in the G20 after the Federal Reserve instituted a 600-billion-dollar attempt to reflate the US economy, in a radical monetary step that foreign critics say will trigger tit-for-tat currency devaluations.

In Beijing, the National Bureau of Statistics (NBS) announced that China's consumer inflation was now running at its fastest pace in more than two years -- and a spokesman said that would only worsen under the Fed's new stimulus.

"The new round of foreign quantitative easing policy will release enormous liquidity, which will have a rather significant impact on the Chinese economy," NBS spokesman Sheng Laiyun said, warning of a battle ahead to rein in prices.

Emerging economies around the world are worried that the new Fed money will stoke speculative flows of foot-loose "hot money", and some are resorting to capital controls in a bid to stem the tide.

The United States wants the G20 to agree to curtail "excessive imbalances" in world trade as a back-door way of forcing China to realign its currency, which critics say is kept deliberately cheap to support Chinese exporters.

But the proposal has run into trouble not just from China but from Germany, an export champion that insists its own trading prowess has nothing to do with any currency chicanery.

"To set political limits on trade surpluses and deficits is neither economically justified nor politically appropriate," German Chancellor Angela Merkel said in a speech to a G20 business summit.

Merkel also called for leaders to take a strong stance against trade protectionism, which other countries such as India worry could be the end-result of the G20 contretemps.

"We have to do everything to avoid protectionism. So we have to send a signal from the summit that we finally get into the last round of Doha negotiations (on freeing up world trade)," the German leader said.

At best, South Korean officials have suggested, the G20 may settle for a watered-down deal to task the International Monetary Fund (IMF) with crafting guidelines to trim the yawning imbalances between creditor and debtor nations.

Tired and fractious negotiators have been meeting long into the night all week in Seoul to try to pin down language that the G20 leaders can adopt in a closing communique on Friday.

"Considerable differences remain concerning the issues of currencies and current account imbalances," G20 spokesman Kim Yoon-Kyung told reporters after the latest talks Wednesday among deputy finance ministers and officials.

"They even failed to set today's discussion schedule," Kim said, while stressing that the talks would go on after the G20 leaders open their two-day summit with a working dinner.

The leaders are expected to find other parts of their agenda less troublesome -- including endorsement of the biggest shakeup in the IMF's 65-year history to give emerging powers such as China a greater role.

The heads of government will also reprise discussions on shoring up the capital reserves of major banks, after Wall Street's near-death experience in September 2008 prodded the G20 into elevating its meetings to summit level.

But highly technical negotiations on tackling companies deemed "too big to fail" require much more work, as G20 officials thrash out how to approach the cross-border implications of any new failures by large finance firms.

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