— Adds Quotes, Background Throughout

KYOTO, Japan (MNI) – Top financial policymakers from the
Asia-Pacific Economic Cooperation forum on Saturday endorsed the latest
Group of 20 initiative to let market forces set foreign exchange rates
more and avert a race to make currencies weaker to gain an export edge.

APEC finance officials from the U.S., Japan and other advanced
countries as well as emerging economic powers including China and Russia
also backed the G20 accord to build a framework for correcting large
external imbalances at a gradual pace without using a single
quantitative target.

“We will move towards more market-determined exchange rate systems
that reflect underlying economic fundamentals and will refrain from
competitive devaluation of currencies,” the APEC finance ministers said
in a joint statement after their one-day meeting here, repeating the
pledge made by the G20 finance ministers and central bank governors
last month.

“Advanced economies, including those with reserve currencies, will
be vigilant against excess volatility and disorderly movements in
exchange rates. These actions will help mitigate the risk of excessive
volatility in capital inflows facing some emerging economies.”

Japanese Finance Minister Yoshihiko Noda, who chaired the weekend
meeting, told a joint news conference that while the APEC ministers
didn’t discuss any quantitative targets for reducing current account
imbalances, they shared basic understanding toward working on the issue
in a multilateral context.

U.S. Treasury Secretary Timothy Geithner explained about the common
objectives: “We are trying to make sure, as the world economy recovers,
that future growth is sustainable and we don’t see re-emerge the type of
excess in balances on the trade side, whether they are surpluses or
deficits. It could threaten future growth and threaten future financial
stability.”

He said APEC is seeking to “build the framework for closer
cooperation among emerging and developed countries on these questions so
we bring about a more orderly, smoother, more gradual adjustment to the
big transition we are seeing around the world.”

On the exchange rate front, Geithner said APEC is trying to build a
framework to help defuse tensions and the pressure prevalent across the
global markets and to “provide more stability among major currencies.”

Geithner acknowledged that “this process will take some time” but
added that he thinks there is “a broad consensus” across countries on
the benefits of having a multilateral framework.

“I’m very encouraged by the progress we are making toward that
framework,” he said.

Geithner said reducing imbalances could not be done by just
imposing quantitative targets but it would be better done through a
multilateral framework.

“One of the virtues is to recognize that the exchange rate itself
can’t be the only policy instrument to help facilitate this process,” he
said.

In judging what imbalances are excess, he said, “there is no single
number that makes sense for countries across time.”

Only last month, just before the G20 finance chiefs’ meeting in
Gyeongju, South Korea, on Oct. 22-23, Geithner proposed that G20 member
economies’ current account imbalances — whether they are in surplus or
deficit — should be capped within 4% of their GDP by 2015.

While Geithner’s idea was backed by some G20 member states,
including G20 chair South Korea and Canada, others expressed concern
that it would be difficult to control current accounts because they
comprise not only merchandise trade but also capital and service
accounts.

At the APEC joint news conference, Chinese Vice Finance Minister
Wang Jun said “strong recovery is our priority” and “we already have
consensus on foreign exchange policy,” indicating that Beijing will make
its yuan exchange rate more flexible but only at a pace that would not
hurt sustained domestic economic growth.

Asked what he thought about the U.S. Federal Reserve’s enhanced
program to ease credit through massive financial asset purchases, Wang
replied, “We are attaching high importance to U.S. quantitative easing.”

Wang also stated that the U.S. has conducted quantitative easing to
stimulate its economy, adding that a “recovery in the U.S. economy will
make a great contribution to the global economy.”

The APEC ministers noted the major global challenge: aggressive
credit easing by Japan, the U.S. and Europe to support their economic
recovery and fight deflationary pressures are prompting investors to
move away from low-interest countries toward higher-yielding securities
in emerging economies.

“The global economy is recovering from the recent financial crisis,
but uncertainty remains. Growth in the region is uneven across the
economies, with developing economies experiencing a strong recovery,
while advanced economies are recovering more slowly,” they said.

“Net capital flows have returned in a significant volume to
emerging economies of the region, raising the risk of capital flow
volatility and increases in asset prices in some economies. Financial
reforms are proceeding and we should continue to take steps to build a
stronger and more resilient global financial system.”

“We remain committed to maintaining open markets and fighting
protectionism. We reaffirmed our common resolve to support the recovery
in a collaborative and coordinated way.”

Some APEC members pointed out that the U.S. quantitative easing is
causing problems, such as the rise in asset prices in many emerging
countries, a Japanese official told reporters later.

The Fed on Wednesday intensified its quantitative easing, by
deciding to purchases a total of $600 billion of longer-term Treasuries
through the end of the second quarter of 2011.

Geithner said the U.S. economy, like the global economy, “is in a
much stronger position than it was a year ago, two years ago but we
still face a lot of challenges,” including bringing down very high
unemployment rate, which remained at 9.6% in October, and restoring
fiscal sustainability.

Recent economic indicators including a surge in October non-farm
payrolls by 151,000, far above expectations, are showing that “we have a
very good chance of continuing to come out of this crisis.”

Noda said aging populations are posing a threat to fiscal stability
among not only advanced economies but also many emerging economies.

“Ensuring sound fiscal management and instituting a credible and
growth-friendly fiscal consolidation plan form an indispensable part of
our growth strategy. Improving the efficiency of public finance
management supported by medium-to-long term budget planning is also
important,” the APEC ministers said.

tokyo@marketnews.com
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