GYEONGJU, South Korea (MNI) – Japanese Finance Minister Yoshihiko
Noda said on Friday some caution was expressed at today’s Group of 20
finance chiefs’ meeting toward the joint proposal by the chair and U.S.
that member countries’ current account surpluses or deficits should be
reduced to within 4% of their GDP by 2015.

Both at the G7 and G20 meetings earlier on Friday, the finance
ministers and central bank governors were focused on external imbalances
and the member countries are comparing notes on the proposal, he told
reporters.

He also said foreign exchange rates are only one of many factors
affecting the imbalances.

“I gave my opinion that I’m skeptical about setting a strict
numerical target. But at this point I wouldn’t mind it if it were one of
reference points used to check the progress in efforts to correct
imbalances,” Noda said.

“The current account balance is a result of various economic
activities including those by the private sector, which is different
than the government improving its fiscal balance.”

A strict quantitative measure would mean a clear commitment by
member countries and thus if they failed to hit the target, they would
be criticized by other G20 countries, Noda said.

G20 countries are not using terms like a “target” or “reference
range” but they are talking more about efforts that are “indicative” of
reducing imbalances, a senior MOF official explained.

Noda also said the factors that are causing current account
surpluses or deficits differ from one country to another.

As for Japan, its current account surplus is already within the
proposed 4% of GDP, he said. In 2009, Japan’s surplus stood at 2.8% of
its gross domestic product and it is likely to stay well within the
range through 2015, he added.

Of the Y13 trillion current account surplus Japan posted in 2009,
the bulk of it, Y12 trillion, came from its income surplus, or net
returns on long-term investment overseas, which differs from some other
countries’ surpluses that largely reflect trade surplus gains, said
Noda.

“In any case, we must reach some conclusion at the G20 meeting,” he
said.

The G20 policymakers will continue to discuss various economic and
financial issues on Saturday in hopes of drafting an action plan to be
presented to their leaders for their summit in Seoul next month.

Noda said some countries backed the U.S. proposal while others were
cautious about it while none was clearly opposed. China didn’t make its
position clear, he said.

In discussing imbalances, some emerging countries noted at the G20
meeting that a short-term influx of capital has a negative impact on
their economies while that longer-term inflows should not be a problem,
he said.

In his letter dated Oct. 20, U.S. Treasury Secretary Tim Geithner
said that “G20 countries should commit to undertake policies consistent
with reducing external imbalances below a specific share of GDP over the
next few years.”

“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,” Geithner said. “Conversely, G20 countries with persistent
surpluses should undertake structural, fiscal, and exchange rate
policies to boost domestic sources of growth and support global demand.

msato@marketnews.com
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