4:25 AM
By Gernot Heller and Tetsushi Kajimoto
GYEONGJU, South Korea | Fri Oct 22, 2010 6:27am EDT
GYEONGJU, South Korea (Reuters) - The United States sought to corral reluctant finance leaders into a deal that would commit emerging markets to cut their current account surpluses and allow their currencies to rise at a meeting on Friday.
G20 finance officials started their formal meetings on Friday with nations from the developing world and Japan dismissing the U.S. proposals which it says are aimed at defusing tensions that economists fear could trigger trade wars.
U.S. Treasury Secretary Timothy Geithner, in a letter to finance leaders that was seen by Reuters, said "countries with persistent surpluses should undertake structural, fiscal and exchange rate policies to boost domestic sources of growth."
In return, countries such as the United States that are running big budget and trade deficits would adopt "sustainable medium-term fiscal targets."
Geithner's overtures have already been rejected by countries as diverse as India and Japan and markets are skeptical of a universal deal that would address global economic imbalances and tackle attempts by many emerging economies and others to weaken their currencies.
While the G20 won praise for coordination of stimulus packages during the global financial crisis, its sense of unity has gradually evaporated in the face of strains resulting from unprecedented efforts to revive global growth.
"There is an action plan, but there is an awful lot of complaints, proposals," Russian finance official Andrey Bokarev said ahead of the meetings.
A financial source who met with Geithner in South Korea said that the U.S. official had asked countries to limit their current account surpluses or deficits to 4 percent of gross domestic product, something that few G20 members felt able to accept.
China, India, Saudi Arabia and Russia are all running substantial surpluses while the U.S. is in deficit.
"We need to talk about it first, but numerical targets are unrealistic," Japanese Finance Minister Yoshihiko Noda said.
The issue of addressing "undervalued" currencies will also tax leaders, although Canadian policymakers said that China had agreed in principle to move toward more foreign exchange flexibility.
The U.S. dollar was down 0.27 percent against a basket of six major currencies, near a low for the year struck last Friday and currency strategists said there would be further weakness if the G20 disappointed.
CURRENCY ISSUE REMAINS UNANSWERED
Geithner's letter made no reference to the anticipated language of the final communiqué on foreign exchange arrangements.
He did state that G20 countries "should commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing the appreciation of an undervalued currency."
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