Finance ministers from the Group of 20 major economies held talks on Friday to find ways to resolve the sticky global currency row and set the agenda for next month's Seoul summit.
The global economy session following an opening reception attended by President Lee Myung-bak touched on foreign exchange policies that have received keen international attention as the United States, Japan, China and other major economies have locked horns over moves to tame their currencies amid the sputtering global economic recovery.
Coming into the two-day meeting in Gyeongju, some 370 kilometers south of Seoul, Washington had made it clear that it wants other G-20 countries to get serious about letting currencies rise and fall freely in the market.
This can help reduce trade imbalances that may compel the world to opt for protectionist policies, the U.S. says.
China has rejected calls to revalue the yuan, which is effectively pegged to the U.S. dollar, but its central bank recently raised its interest rate, which can strengthen the currency and deflect criticism that Beijing is keeping its currency artificially weak to bolster exports.
The U.S., in addition, has been pushing for numerical targets for the size of trade surpluses and deficits of countries, a proposal that is being rejected by China, India and even Germany, whose trade balances remain in the black.
Sources here said U.S. Treasury Secretary Timothy Geithner sent letters to G-20 nations running big trade surpluses asking them to limit the size of their trade surplus or deficit to a certain percentage of their gross domestic product.
Related to the currency talks, South Korean Finance Minister Yoon Jeung-hyun held bilateral talks with Geithner and finance ministers from
Canada and France earlier in the day to discuss currency policies and other issues.
South Korean officials said they were optimistic that the finance ministers may reach a broad agreement not to engage in competitive
devaluation. This may be part of the joint communique to be released on Saturday.
"Meetings held during the day between official ministers, including China's Finance Minister Xie Xuren, showed there is room for some flexibility," said an official source who declined to be identified.
The view was supported by Christophe Bornard, assistant director at France's finance ministry, who said the G-7 advanced economies had met
separately on the sidelines of the Gyeongju meeting and reached a broad understanding on the currency issue.
"The understanding reached had been conveyed to the South Korean side," he said. France is the next chair country of a G-20 meeting.
A draft communique that leaked to the press Thursday claimed G-20 countries could agree to "refrain from competitive undervaluation" of their
currencies and strive to move toward a more market-determined exchange-rate system.
Seoul made last-minute adjustments to the discussion session timetable so senior officials can have more time to exchange views on the currency issue into Saturday.
Under this arrangement, finance ministers will discuss general global economic issues with the so-called framework for strong sustainable and
balanced growth (SSBG) that cover foreign exchange policies.
On Saturday, G-20 representatives will also discuss International Monetary Fund (IMF) reforms and global financial safety nets, financial
regulatory reforms and other issues, such as financial inclusion and energy agendas that are important for balanced growth.
Regarding IMF reforms, South Korea called for more support and cooperation from countries like the U.S., Canada and France, so the matter
can be concluded when leaders meet for the G-20 summit in Seoul from Nov.11-12.
Because IMF reforms deal with governance structure, insiders speculated that progress may be slow since there is stiff resistance from advanced industrialized countries that would have to give up their stakes in the organization.
"Reforming the organization is vital to maintain its 'legitimacy,'" Seoul said.
Local experts, meanwhile, claimed that the G-20 countries have generally endorsed the "Korea Initiative," which aims to provide swift relief to
fundamentally sound countries temporarily under a liquidity crunch under a broad financial safety net arrangement.
In addition, the G-20 members have roughly concurred that there is a need for better oversight of systemic risks for governments to maintain a fiscal balance and for rigorous supervision of so-called significantly important
financial institutions, whose collapse could send shock waves throughout the world.
Despite generally upbeat predictions, some sources here said any accord on foreign currency at the end of the talks may be rhetorical, since sharp differences have emerged between the United States and developing economies on ways to reduce excessive trade imbalances.
"There was considerable debate on correcting trade imbalances and currency policies during the closed-door vice ministers' meeting held on
Thursday, although parties have not seen eye to eye on the issue," a local official said.
Analysts speculated that if no middle ground is reached on the matter, G-20 countries may tone down the parts on foreign exchange rates and
trade-related issues in the final communique, with the matter being forwarded to the summit so it can be handled by leaders.