By Lee Joon-seung
GYEONGJU, Oct. 23 (Yonhap) -- The Group of 20 advanced and emerging economies agreed Saturday to effectively end a looming trade war by refraining from competitive currency devaluations and adhering to market-determined exchange rate policies.
A joint statement, issued at the end of a two-day G-20 finance ministers' meeting, also calls on countries to tackle excessive trade imbalances by imposing sustainable levels of trade surpluses and deficits, and to move forward on reforming the International Monetary Fund (IMF).
The agreement also highlighted the "leadership" role of South Korea as the chair of the G-20 summit to be held in Seoul on Nov. 11-12. South Korea hopes that the Seoul meeting will become a forum to actively enhance global economic cooperation.
"The understanding reached by finance leaders effectively ended the controversy surrounding the foreign exchange issue and help reduce uncertainties," South Korea's Finance Minister Yoon Jeung-hyun told reporters after the meeting in this ancient city in southern South Korea.
Saturday's agreement, among other things, is expected to defuse mounting tension between China and the United States over Beijing's currency policies. The U.S. has accused China of artificially keeping its currency weak against the dollar to boost exports.
U.S. officials came to this week's meeting, declaring that leadership countries should get more serious about letting their currencies rise and fall freely in the market.
China has rejected calls to revalue the yuan, which is effectively pegged to the U.S. dollar, but its central bank recently raised its interest rate, which can strengthen the currency and deflect criticism about its exchange rate policy.
Related to the move to impose sustainable levels of trade surpluses or deficits, members shied away from setting quantitative figures, but concurred on the need to curb excessive trade imbalances.
"The G-20 will pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels," the joint statement said.
Last year, China reported a trade surplus equal to just under 6 percent of its economy in 2009. In the same year the United States reported a deficit equivalent to 2.68 percent of its GDP.
The United States had originally suggested that the size of the deficit be kept to 4 percent of the gross domestic product (GDP) but some countries, including China and Germany, expressed reservations.
Experts hailed Saturday's agreement as a meaningful step forward.
Lee Kye-woo, an economics professor at Hankuk University of Foreign Studies, said the agreement could be on par with the 1985 Plaza Accord that set the stage for the realignment of foreign exchange rates between the U.S. dollar, the Japanese yen and the German Deutsche Mark.
"The latest accord was possible because no G-20 country can openly reject a call to stop competitive devaluation that can be ruinous to all sides," he said.
Other experts concurred.
"The gains in Gyeongju are noteworthy particularly since similar talks at a recent IMF gathering in Washington made little headway," said Bae Min-geun, a senior economist at LG Economic Research Institute.
Meanwhile, the G-20 members called for reforming the International Monetary Fund (IMF) quota, which is part of the broader global financial safety net agenda, regulatory control of so-called significantly important financial institutions and formulating a framework for strong, sustainable and balanced growth.
The leading economies said over 6 percent of the IMF's quota share will be moved from the developed economies to underrepresented countries by 2012. This is higher than the 5 percent that was originally allocated.
G-20 members also concurred to fully implement the new bank capital and liquidity framework drawn up by the Basel Committee and work on policies to help mitigate the impact of excessive capital flows that have disrupted smaller economies in the past.
Earlier in the week, the Basel Committee on Banking Supervision had agreed to recommend restriction rules that will be reviewed in Gyeongju and help create a new global financial oversight regime to be announced during the Seoul summit.
The G-20 also agreed to endorse the "Korea Initiative" that calls for the establishment of a global financial safety net linked to the revamping of loan policies at the IMF.
The world leading economies said they will also improve financial services to those who have been left out in the past and small and medium enterprises vital for job creation while doing more to support the United Nations Millennium Development Goals.
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