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WRAPUP 4-G20 agrees plan to detect danger spots--sources

Published 04/15/2011, 03:04 PM
Updated 04/15/2011, 03:08 PM
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* G20 risk plan won't name countries yet

* Progress made on when, how to use capital controls

* China says won't be rushed on currency reform (Adds details from more G20 sources)

By Gernot Heller and Jan Strupczewski

WASHINGTON, April 15 (Reuters) - Finance chiefs from 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, Group of 20 sources said.

Under the agreement, data on debt, borrowing and trade balances will be plugged into computer models to determine if a country's practices should come under special scrutiny.

A G20 official said the group has a good idea which countries will merit extra attention but they will not be named in a communique detailing the deal later on Friday.

The officials also agreed to keep working on a framework covering when countries can use controls over capital inflows -- a sensitive topic for emerging market nations that have seen huge inflows of "hot money" from countries like the United States where interest rates are low.

Brazil, an important player in the group of developing and rich economies, had pushed back hard against any effort to restrict the use of capital controls, but sources said it had softened its opposition.

As the major forum for global policy coordination, the G20 wants to prevent the type of boom-and-bust cycle that led to the 2007-2009 financial crisis and the worst global recession since World War Two.

The hope is to rebalance a world in which some countries, notably the United States, are heavy consumers, while others, such as China, depend on exports for growth.

But it continues to be a struggle to fully agree how best to do so now that the darkest days of crisis have passed.

G20 economies that are particularly large are expected to be face a second round of analysis under the process to identify economic weak spots. Separately, any G2O country found to be out of balance would also face more analysis.

The G20 compromised in Paris in February on broad indicators to use and now have agreed on using four types of computer models to measure them, a G20 source said.

Notwithstanding the agreement, 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.

According to one source, a country subjected to a further analysis because of possible imbalances might face questions whether it had an undervalued currency or had accumulated excess foreign exchange reserves -- a characterization that appeared to point at China. A top Chinese official said on Friday the yuan would only be allowed to rise in value at a speed Beijing sets.

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

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.

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 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 economies that represent 5 percent of total G20 output were likely to merit special monitoring. That would include the United States, China, France, Germany, Japan and possibly others, such as Britain. (Reporting by Reuters IMF/G20 team; Writing by Glenn Somerville; Editing by William Schomberg, Leslie Adler and Tim Ahmann)

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