GYEONGJU, South Korea (MNI) – Group of 20 countries should not use
foreign exchange manipulation to gain a competitive edge for their
exports, U.S. Treasury Secretary Tim Geithner said in his letter to G20
colleagues dated Oct. 20 and obtained through a G20 source on Friday.

The following is the full text of his letter.

“Dear G20 Colleagues:

“I am writing to offer some suggestions for our meeting later this
week. We are obviously at a moment when the world is looking to the G20
to provide a stronger commitment to work together to address the major
challenges to a sustainable global recovery. I know that some of you
will want to reserve any substantive agreement until the November
Leaders’ Summit, but I think we should take advantage of the presence of
the central bank governors to try to reach agreement on the broad
elements this weekend, and put those in a report to our Leaders.

“Building on Pittsburgh’s Framework for Strong, Sustainable, and
Balanced Growth and Toronto’s commitments on addressing sovereign debt
sustainability, here are three specific suggestions designed to provide
a stronger framework of cooperation on international financial issues:

“First, G20 countries should commit to undertake policies
consistent with reducing external imbalances below a specific share of
GDP over the next few years, recognizing that some exceptions may be
required for countries that are structurally large exporters of raw
materials. This means that G20 countries running persistent deficits
should boost national savings by adopting credible medium-term fiscal
targets consistent with sustainable debt levels and by strengthening
export performance. Conversely, G20 countries with persistent surpluses
should undertake structural, fiscal, and exchange rate policies to boost
domestic sources of growth and support global demand. Since our current
account balances depend on our own policy choices as well as on the
policies pursued by other G20 countries, these commitments require a
cooperative effort.

“Second, to facilitate the orderly rebalancing of global demand,
G20 countries should commit to refrain from exchange rate policies
designed to achieve competitive advantage by either weakening their
currency or preventing appreciation of an undervalued currency. G20
emerging market countries with significantly undervalued currencies and
adequate precautionary reserves need to allow their exchange rates to
adjust fully over time to levels consistent with economic fundamentals.
G20 advanced countries will work to ensure against excessive volatility
and disorderly movements in exchange rates. Together these actions
should reduce the risk of excessive volatility in capital flows for
emerging economies that have flexible exchange rates.

“Third, the G20 should call on the IMF to assume a special role in
monitoring progress on our commitments. The IMF should publish a
semiannual report assessing G20 countries’ progress toward the agreed
objectives on external sustainability and the consistency of countries’
exchange rate, capital account, structural, and fiscal policies toward
meeting those objectives.

“With progress on these fronts, we should reach final agreement on
an ambitious package of reforms to strengthen IMF’s financial resources
and its financial tools, and to reform the governance structure to
increase the voice and representation of dynamic emerging economies.”

msato@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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