G20 ministers reach compromise deal to correct economic flaws

Chandra Shekhar

Paris, Feb 19 (PTI) G20 finance ministers have reached acompromise deal to correct global economic imbalances andexpressed concern over excessive commodity price volatilityimpacting the world food security, an issue pressed by India.

After two days of hard bargain by their financeministers, major economies faced with uneven recovery anddownside risks reached a text in the face of tough resistancefrom China to agree on guidelines for removal of structuralflaws in the global economy.

"It has not been simple. There were obviously divergentinterests but we were able to reach a compromise on a text,"French economy minister Christine Lagarde said.

The finance ministers and central bank chiefs, who couldnot reach a broad consensus on framing rules for currentaccount deficit and real exchange rate and reserves, said "ouraim is to agree, by our next meeting in April," on a set ofindicative guidelines to ensure orderly economic growth.

However, the document did not talk about an issue of muchinterest to India. New Delhi wanted that G20 should urge alljurisdictions to conclude Tax Information Exchange Agreementsso that menace of black money in tax havens can be tackled.

This issue seems to have been put on back seat as a lotof time was spent on reaching an agreement with China, whichwas opposed to inclusion of foreign exchange reserves and itsexchange rate among the guidelines. China is sitting on a USD2.8 trillion forex reserves and is accused by the US ofmanipulating its currency yuan.

Faced with a double digit food inflation, India alsopressed for a coordinated approach to tackle food, commodityand oil price volatility, which make emerging economies"vulnerable".

The issue was raised by Finance Minister Pranab Mukherjeewho said that "India did not contribute to the build-up orpersistence of global imbalances" but "found no room forcomfort in tackling food inflation" in the backdrop of highinternational prices.

Commodity prices increased 20 to 30 per cent in 2010,according to the IMF estimates.

The communique issued said: "We discussed concerns aboutconsequences of potential excessive commodity pricevolatility... we reiterated the need for long term investmentin the agriculture sector in the developing countries."

The ministers agreed on a plan to strengthen theinternational monetary system (IMS) with regard to disruptivecapital flows and disorderly movement in exchange rates, amatter of great concern to India.

"Today we agreed on ... strengthening the functioning ofIMS,... mindful of possible drawbacks and management of globalliquidity to strengthen our capacity to prevent and deal withshocks...," the communique said.

The document also expressed its worries on the impact ofrising oil prices which have exceeded USD 100 per barrel.

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