Canadian Finance Minister Jim Flaherty said he is siding with U.S. Treasury Secretary Timothy F. Geithner and his proposal to have Group of 20 nations commit to policies that reduce external imbalances below a specific share of gross domestic product.
“I think it’s useful,” Flaherty said in a Bloomberg Television interview in Gyeongju, South Korea today, where he is meeting with his G-20 counterparts after weeks of wrangling over whether nations are relying on weaker exchange rates to spur growth. “It gets us directionally where we want to go which is to create an action plan for our leaders that they can adopt” when they meet in Seoul next month.
Geithner is proposing G-20 members pursue policies to reduce trade imbalances “below a specified share” of their economies in coming years, according to an Oct. 20 letter obtained by Bloomberg News. Canada agrees with the idea “because it fits with the strong, sustainable, balanced growth that we need to accomplish,” Flaherty said.
Some policy makers have signaled their skepticism about the idea. Japanese Finance Minister Yoshihiko Noda told reporters he thought numerical targets weren’t realistic, and said, “I’ll need to hear about it, including how it will be done.”
Root of the Problem
Still, a Canadian government official said the idea targets the root of the problem of unbalanced global growth. The official, who spoke to reporters on condition of anonymity, said for example that China could allow its currency to be more flexible and adopt policies to discourage saving, while the U.S. and other developed nations could take steps to narrow fiscal deficits.
Flaherty, who met with Chinese Finance Minister Xuren Xie earlier today, said “China and some of the other Asian economies realize that inflexibility of currencies is one of the facets to global imbalances that needs to be addressed and we’ll see how well we do on addressing that.”
The discussions are going “fairly well,” Flaherty said. “No one wants to be confrontational here,” he told reporters. “No one wants to walk away from here without an agreement on an action plan.”
Recent moves by some countries to defend their economies through currency policy are “protectionist-type measures that we all agreed we would avoid,” he said.
“We’re trying to make sure we get back on track,” Flaherty said.