G20 ministers reach compromise on economic flaws

G20 finance ministers find a compromise deal to correct global economic imbalances and expressed concern over excessive commodity price volatility impacting the world food security, an issue pressed by India.

After two days of hard bargain by their finance ministers, major economies faced with uneven recovery and downside risks reached a text on Saturday in the face of tough resistance from China to agree on guidelines for removal of structural flaws in the global economy.

"It has not been simple. There were obviously divergent interests 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 could not reach a broad consensus on framing rules for current account deficit and real exchange rate and reserves, said "our aim is to agree, by our next meeting in April," on a set of indicative guidelines to ensure orderly economic growth.However, the document did not talk about an issue of much interest to India.

New Delhi wanted that G20 should urge all jurisdictions to conclude Tax Information Exchange Agreements so that menace of black money in tax havens can be tackled.
This issue seems to have been put on back seat as a lot of time was spent on reaching an agreement with China, which was opposed to inclusion of foreign exchange reserves and its exchange rate among the guidelines.China is sitting on a USD 2.8 trillion forex reserves and is accused by the US of manipulating its currency yuan.

Faced with a double digit food inflation, India also pressed for a coordinated approach to tackle food, commodity and oil price volatility, which make emerging economies "vulnerable".The issue was raised by Finance Minister Pranab Mukherjee who said that "India did not contribute to the build-up or persistence of global imbalances" but "found no room for comfort in tackling food inflation" in the backdrop of high international prices.Commodity prices increased 20 to 30 per cent in 2010, according to the IMF estimates.

The communique issued said "We discussed concerns about consequences of potential excessive commodity price volatility. we reiterated the need for long term investment in the agriculture sector in the developing countries."
The Ministers agreed on a plan to strengthen the international monetary system (IMS) with regard to disruptive capital flows and disorderly movement in exchange rates, a matter of great concern to India."Today we agreed on strengthening the functioning of IMS,mindful of possible drawbacks and management of global liquidity to strengthen our capacity to prevent and deal with shocks," the communique said.

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