President Barack Obama has insisted that a strong US economy is crucial for a wider international recovery as the two-day G20 summit in Seoul, South Korea, gets under way. In a letter to G20 country leaders, Mr Obama warned that America cannot remain a profligate consumer using borrowed money, and needs other countries to pull their weight to fix the world economy.
“The most important thing that the United States can do for the world economy is to grow, because we continue to be the world’s largest market and a huge engine for all other countries to grow,” he said.
However, compromise among G20 countries has looked unlikely in recent weeks. While the US sees the top priority being persuading China to let its currency rise, others are irate over US Federal Reserve plans to inject £371 billion of new money into the sluggish American economy, effectively devaluing the dollar.
“Reducing imbalances between developed countries and developing countries is an urgent matter we have to resolve for a balanced global economy,” South Korean President Lee Myung-bak told a business leaders’ conference ahead of the summit.Over the past two days, government ministers and senior G20 officials have worked to hammer out a substantive joint statement to be issued at the end of the summit on Friday.”Major countries have been deadlocked, so the agenda is likely to be handled when leaders gather at the formal reception and working dinner” scheduled for Thursday evening, said Kim Yoon-kyung, a summit spokesman.
A major issue confronting the G20 is how to create a new global economic order to replace one centred on America incurring huge trade deficits because it consumes more foreign products than it sells to others, while countries such as China, Germany and Japan accumulate vast surpluses.
Mr Obama also made it clear that the US cannot remain the world’s consumer, propping up others by borrowing and spending, saying: “The foundation for a strong and durable recovery will not materialise if American households stop saving and go back to spending based on borrowing.”
He also warned that the practice of “undervaluing currencies for competitive purposes” must be stopped – a message primarily aimed at China, who America believes is deliberately undervaluing the yuan to give its exports an unfair competitive edge.