Geithner urges action on imbalances

Geithner urges action on imbalances
By James Lamont in New Delhi
Copyright The Financial Times Limited 2010
Published: April 6 2010 14:53 | Last updated: April 6 2010 14:53
http://www.ft.com/cms/s/0/ec5b582e-417d-11df-adec-00144feabdc0.html


Sweeping reforms are needed to rebalance the global economy by boosting domestic demand in some of the world’s largest economies, Timothy Geithner, the US Treasury secretary, said on Tuesday.

Mr Geithner, on a two-day visit to India, the world’s fastest-growing large economy after China, said that “broader reforms” were needed outside the US to secure early signs of a global economic recovery.

His call for deeper financial reforms comes days after a decision on whether or not to designate China as a currency “manipulator” - giving it an unfair trade advantage - was delayed. It also comes as the US puts pressure on European countries to agree to higher capital adequacy ratios for their banks.

Mr Geithner described “financing future growth” by large economies – such as India and China – as “the critical challenge” that the world faced as it lessened its dependence on high levels of US consumption. He said the pursuit of a “healthy pattern of growth” would require more changes in the US and around the world.

“As we [the US] move to an economy that is saving and investing more, we want to see broader reforms outside of the US,” Mr Geithner said. “This is in the interest of the world to produce stronger demand and growth, like you are seeing in India today.”

Washington’s praise for India’s “steady hand” in the global financial crisis and an economy with domestic demand as its motor is in marked contrast to concerns in the US Congress about China lowering the value of the renminbi to maintain its export-led economic model. Congress is poised to take legislative steps against China for harming its economy by manipulating its exchange rate.

The US is seeking to enlist the support of India, Asia’s third-largest economy, in rebalancing the world economy. It has identified common challenges such as designing a private financial system that can support future innovation, extending financial services to more people and financing badly needed infrastructure with private investment.

“As two of the world’s largest economies, we need to work more closely together,” Mr Geithner said after meetings with Manmohan Singh, India’s prime minister, and Pranab Mukherjee, finance minister.

“Our ability to co-operate on economic and financial issues will be critically important to the success of global efforts to create conditions for a more stable global financial system, more balanced global economic growth that is less dependent on the willingness of Americans to live beyond our means.”

India shares some of the US’s concerns about its own trading relationship with China. The trade balance is skewed heavily in China’s favour, and Indian business leaders complain of formidable non-tariff barriers that prevent them building their businesses in China.

China has responded by offering to accelerate a bilateral trade agreement with India, similar to a free trade agreement, to ease trade and investment flows. Chinese leaders have also promised to boost domestic demand by loosening fiscal and monetary measures. However, one top Indian official described a widening trade deficit with China, which has become India’s biggest trading partner in goods in recent months, as “politically unsustainable”.