SEOUL, Nov. 12 (Yonhap) -- The Group of 20 advanced and emerging economies made a meaningful gain to reduce global economic tensions on Friday by agreeing to resolve the current account imbalance issue before the next summit scheduled to take place in France in 2011.
The Leader's Declaration, announced by South Korean President Lee Myung-bak after the two-day G-20 summit, highlighted the agreement to come up with "indicative guidelines" to identify large current account imbalances that can exert negative influence on long-term growth and have the potential to trigger a trade war.
The declaration calls for a guideline to be ironed out in the first half of next year with leaders to sign off on the agreement at the next global economic summit after a thorough review process that takes into account special circumstances of each member country.
Leaders of countries representing 85 percent of the global economy also agreed to avoid "competitive devaluation" of currencies, in line with the communique reached at the end of the G-20 finance ministers meeting in Gyeongju last month.
The finance ministers reached a deal to move toward a more market-determined exchange system that reflects underlying economic fundamentals and to refrain from competitive devaluation of currencies. They said countries should pursue a full range of policies conducive to reducing excessive imbalances to sustainable levels.
They, in addition, agreed that advanced countries will be vigilant against excess volatility and disorderly movements of exchange rates in order to help mitigate the risks facing some emerging economies.
"Compared to Gyeongju, the Seoul summit marks a gain because specific dates to reach an accord have been reached," the president said in the press conference following the summit.
He said that the latest accord calls for enhancing the Mutual Assessment Process (MAP) to promote external sustainability that can help countries pursue policies conducive to reducing excessive imbalances and keeping current account imbalances to sustainable levels.
South Korean President Lee Myung-bak answers questions from reporters after announcing the G-20 Leader's Declaration in Seoul on Nov. 12 (Yonhap)
This view was echoed by U.S. President Barack Obama, who said that the Seoul summit marked a move in the right direction because, compared to the past, leaders spelled out actual requirements and changes that must be made.
The latest summit statement, which is the first time members have convened a meeting in the post-global financial crisis environment, calls for a framework working group with technical support from the International Monetary Fund and other organizations to develop viable guidelines that countries will be required to follow in the coming years.
"The fact that an agreement was reached to tackle this problem marks a move forward, especially since there were initial reservations from many countries who were concerned any such move could hinder future policy decision," a government source said.
He said that once a guideline is released, the G-20 will be tasked with implementing this.
Despite the results, the declaration received flak from some critics for making only slight gains in the currency and current account issue compared to Gyeongju and not fully extinguishing growing tensions between the U.S. suffering from a chronic trade deficit and China, which runs a huge surplus.
The U.S. had been trying to peg a current account surplus and deficit to a country's gross domestic product (GDP). It suggested that limiting the imbalance to 4 percent of the GDP would reduce concerns of sustainability, although this has made no headway due to strong opposition from countries such as the China, Germany and Japan that maintain trade surpluses.
Other issues that have the potential to hurt future talks include the decision by Washington to print more money to buy back its Treasuries, which could have the effect of weakening the dollar versus other currencies.
Such a move is seen by some as reneging on the Gyeongju pledge not to engage in competitive devaluation, although the U.S. has asked and received permission to take the measures.