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WRAPUP 3-G20 agrees plan to spot danger-spots--source

Published 04/15/2011, 01:19 PM
Updated 04/15/2011, 01:24 PM
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* G20 risk plan may not name countries yet

* Aim is to refine proposals for fall leaders' meet

* China says won't be rushed on currency reform (Recasts; adds comments on Greece; background on expanding IMF's SDR)

By Gernot Heller and Jan Strupczewski

WASHINGTON, April 15 (Reuters) - The world's big economies agreed on Friday on a plan for identifying countries whose policies could put the global economy at risk if left unchecked, a Group of 20 source said on Friday.

The outline will be made public in a communique later on Friday. It was unclear whether specific countries deemed large enough to merit special attention would be named now or later.

The G20 group of rich and emerging economies has been struggling to come up with a process that will help lay a foundation for global growth less prone to the booms and busts of recent decades.

Top finance officials were huddling behind closed doors to flesh out the complicated plan, which would use a range of economic and financial indicators to gauge when policies were leading to a buildup of risk.

The idea is to help rebalance a world economy in which some countries, most notably the United States, are overly large consumers, while others, such as China, lean heavily on exports for growth.

The so-called "indicative guidelines" will likely need considerable refinement before they can be endorsed by G20 political chiefs at a fall meeting in Cannes. France, this year's G2O host, has made the plan a priority.

Thorny patches are still ahead. China has voiced suspicion that the effort is a U.S.-driven bid to get it let its yuan currency appreciate more rapidly. A top Chinese official said on Friday the yuan would only be allowed to rise in value at a speed Beijing sets.

Getting the G20 to agree how to spot and fix dangers to global growth is a considerable feat given the array of other immediate threats -- high oil prices, huge debts in some rich nations and unrest in the Middle East.

But as the major forum for global policy coordination, the G20 wants to insulate the economy from some of the imbalances that led to the 2007-2009 crisis and the worst global recession since World War Two.

However, it has become hard to find agreement on just how to reform the world's financial system now that the darkest days of the financial crisis have passed.

One potential shortcoming of the imbalances pact is that countries will not be bound to follow any policy recommendations that emerge. Instead, officials hope peer pressure brings about needed changes.

Even as finance chiefs tried to look to the future, Europe's acute debt problems demanded attention.

European finance chiefs played down the idea that Greece was on the verge of needing to restructure its debt, although financial markets see it as virtually inevitable.

GLOBAL DIVIDE

The meetings in Washington once again exposed a divide between big emerging economies, led by the group known as BRICS, for Brazil, Russia, India, China and South Africa, and developed economies such as the United States.

Leaders of the BRICS kept up their calls for a monetary system less reliant on the U.S. dollar at a summit in China this week.

South African President Jacob Zuma, speaking in China, blasted the United States for its super-loose monetary policies and over-spending, which he said threatened the world economy.

The Federal Reserve's $2 trillion bond-buying program, designed to stimulate the U.S economy, has been blamed by emerging economies for driving down the dollar's value and unleashing destabilizing waves of "hot money" into emerging markets in search of higher yields.

A cloudy outlook for global growth complicates efforts to find unity about how to add stability to the economic system.

High oil and food prices, the euro zone's sovereign debt crisis, political infighting over the massive U.S. budget deficit and the impact of Japan's earthquake, tsunami and nuclear crisis all pose risks to the recovery from recession.

In addition to trying to secure a deal on guidelines for economic imbalances, G20 members were also considering expansion of the IMF's accounting unit known as the SDR, or Special Drawing Rights, to include more currencies.

The SDR is made up of four currencies -- the U.S. dollar, British pound, Japanese yen and the euro -- but some think finding a way to add China's yuan would be a step toward giving the SDR more profile as a potential future reserve currency, a position now held by the dollar.

French Finance Minister Christine Lagarde said on Thursday the biggest economies -- those representing 5 percent of total G20 output -- might get special scrutiny under the effort to monitor risky policies. That would include the United States, China, France, Germany, Japan and possibly others, such as Britain.

The G20 was also discussing how to apply guidelines. That might be done through computer modeling, with sources telling Reuters four different models for identifying imbalances were being discussed.

Reducing budget deficits is crucial too. The IMF this week said the United States may have a hard time meeting a G20 goal of halving its deficit by 2013.

President Barack Obama presented a plan this week to cut the deficit by $4 trillion over 12 years, but his former economic adviser said the country should wait until after growth is strong enough to warrant higher interest rates. (Reporting by Reuters IMF/G20 team; Writing by Glenn Somerville, editing by William Schomberg and Leslie Adler)

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