WASHINGTON — The world's major economies have reached an agreement on how to measure the types of dangerous imbalances that contributed to the worst global downturn in seven decades.
The deal was announced in a joint statement issued after a day of talks among finance officials from the Group of 20 rich industrial nations and major emerging markets such as China and Brazil. The effort will monitor countries and prod them to take corrective actions when imbalances in such areas as foreign trade or government debt rise to excessive levels.
French Finance Minister Christine Lagarde said the agreement is a significant achievement that will maintain the momentum to revive the global economy and prevent future financial crises.
Lagarde said that in the beginning, the monitoring process would focus on the world's largest economies but would eventually be broadened to include all nations in the G-20.
The G-20 is composed of the traditional economic powers including the United States, Japan and European nations, as well as fast-growing emerging markets including China, now the world's second largest economy, India and Brazil.
After the financial crisis struck in fall 2008, the G-20 took over from the G-7 as the pre-eminent policy setting group for the global economy. The talks Friday were part of three days of discussions and will wrap up today with meetings of the steering committees for the 187-nation International Monetary Fund and the World Bank.
At a summit meeting of leaders in Pittsburgh in September 2009, the G-20 nations agreed to pursue policies to rebalance global growth in which countries such as China and Germany, which run large trade surpluses, would push for less reliance on exports and more domestic-led growth.
At the same time, big deficit countries such as the United States would seek to trim huge deficits in government budgets and trade. The U.S. deficits were seen as a major culprit in the last recession by attracting foreign capital, which fueled an unsustainable boom in housing, supported by foreign investments of subprime mortgages that ended up imploding and dragging down the U.S. financial institutions.
But China, in particular, has resisted the rebalancing program, contending that its trade surpluses and huge reserves of foreign currencies were not too blame for the financial meltdown in Western nations. Beijing also sees the rebalancing effort, which is being championed by the United States, as a backdoor way to bring greater pressure on China to allow its currency to rise in value against the dollar.
The agreement reached Friday will be followed up by more work on the monitoring process to be done by the International Monetary Fund, with a goal of having the leaders of the G-20 countries endorse the approach at their meeting in Cannes, France, in the fall.
Russian Finance Minister Alexei Kudrin told reporters a key remaining question will be "whether we make the monitoring mandatory and have sanctions" for failure to address imbalances in a timely fashion.