Asian Development Bank President Haruhiko Kuroda laughs as he greets China's Minister of Finance Xie Xuren (R) as they arrive for a meeting of the Development Committee during the International Monetary Fund and World Bank Spring Meetings at IMF headquarters in Washington, April 16, 2011. [Photo/Agencies]

New watchdog to highlight and correct fiscal flaws

WASHINGTON - Group of 20 finance chiefs agreed on details of a new surveillance system aimed at highlighting and rectifying flaws in the world economy before they imperil growth.

The officials, who met in Washington on Friday during the spring conference of the International Monetary Fund and World Bank, outlined four methods they will use to decide when indicators such as budget deficits and external trade balances appear excessive. A country identified as having persistently dangerous levels in any two areas will be subjected to further study and may have remedies suggested.

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"No matter how the indicators are set up, every large economy cannot meet all of these standards. China should not bother too much on how to submit a full-score answer sheet, but needs to focus on how to improve some economic aspects that cannot maintain sustainable growth," Chinese central bank governor Zhou Xiaochuan said on Saturday in a panel discussion during the Boao Forum in Hainan province, which ended on Saturday.

Hsu Chen-min, president of the Taiwan Academy of Banking and Finance, told China Daily that the indicators set by G20 do not contradict China's macro policies, because they mainly focus on trade and barely involve capital.

"China already makes efforts to achieve trade balance, as the country vows to boost domestic consumption, increase imports and cut excessive foreign exchange reserves," said Hsu.

Although the inflation index climbed to a 32-month high in March, "Chinese inflation is still under control," Yi Gang, China's central bank deputy governor, was quoted by Reuters as saying during the meeting. "There will still be some inflationary pressure in the second quarter. But for the whole year, we are confident it will be under control and still meet the inflation target, around 4 percent."

"China has raised rates and hiked bank reserve requirements a few times; adding a prudent monetary policy, money supply tightening, bank reserve hikes, interest rises will help ease inflation pressures," Yi explained.

The international group of finance ministers hope that the process laid out on Friday in Washington will deliver more-balanced international expansion in the wake of uneven trade and investment flows that help trigger the credit crisis.

Differences over the root causes of imbalances and the lack of an enforcement mechanism may still undermine the initiative, said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto.

"They're working toward a fix, but we're a long way from fixing the global imbalances," said Toronto-based Sutton.

"The global recovery is broadening and becoming more self-sustained, with increasingly robust private demand growth," the communiqu stated. "But downside risks remain."

Unrest in the Middle East and Japan's natural disaster has "increased economic uncertainty and tensions in energy prices," according to the communiqu. Policy makers said there is "adequate spare capacity to meet global energy demand."

The G20 also agreed to strengthen coordination "to avoid disorderly movements and persistent exchange rate misalignments" and to establish a path to increasing the number of currency that comprise the IMF's Special Drawing Rights. Policy makers will also research the use of capital controls further, the communiqu said.

The IMF predicted last week that global current account imbalances will remain wide if countries with trade surpluses fail to spur domestic demand and those with trade deficits don't save more.

Data also showed China's currency reserves exceeded $3 trillion for the first time; in the US, lawmakers are at odds over how to pare a record budget deficit.

China will continue to allow more flexibility in the yuan, Zhou Xiaochuan told the press on the sideline of the Boao forum.

Chinese officials say low interest rates in the West are causing strong capital flows into emerging markets such as theirs, a position echoed by the Group of 24 developing nations on Friday.

"The communique has fully reflected demands of all parties and is balanced," China Vice-Finance Minister Zhu Guangyao said on Saturday. "China is satisfied with the result."

The next step is for officials to fine-tune the plan and present leaders with a list of those countries aggravating imbalances before the G20 summit scheduled for November in Cannes, France.

China Daily's Wang Xiaotian contributed to the report.

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