US, Asia fight over global imbalances

The gathering of policymakers in Hyderabad for the annual meeting of Asian Development Bank saw some hard posturing by Asian and US representatives that hinted that realpolitik rather than economic rationale could play a larger role in the days to come. Skyrocketing oil prices and a widening US current account deficit has created imbalances that would take sacrifices from every nation to iron out. "For every dollar decrease in the US current account deficit, there should be an adjustment somewhere,"US treasury under secretary Timothy Adams said at the meeting. While the Chinese warned against politicising the issue of its foreign currency management, the Americans left enough hints that protectionist sentiment may be building there. India added its bit by saying that it may not like a common prescription as its contribution to the imbalances was minimal. US believes that China should reduce its cheap exports and allow more imports to balance the skewed trade equation. US now has a trade deficit of over $800 billion and China has a surplus of $224 billion and a forex kitty of $875 billion. It is the largest forex hoard in the world. China, Japan and Germany now account for about half of the world's surplus. The US deficit is weighing down the dollar, which is losing value against other currencies. Adams said imbalances did not happen overnight and demographic factors have affected savings, hinting at China's high savings rate of over 30%. "A complex web of driving forces has brought us here and there is no quick way of unwinding them. It has to be a shared responsibility,"he said. China's vice finance minister, Li Yong told delegates that he was also concerned about global imbalances. Li also agreed that the responsibility had to be shared. "We are all on the same boat. No one will escape if this boat sinks,"Li said. China's wants to balance its exports and imports and it was working towards that goal, Li said. "Protectionism will be detrimental to global growth,"he warned. "We need consultation, not politicise the issue. We should reform the global financial architecture,"he said. FM P Chidambaram said that India should be considered differently. While agreeing that a co-operative approach was necessary, he said each country should have a different approach. He also added: "They (oil exporters) have taken advantage of the booming equity and real estate assets to invest their petro dollars,"Chidambaram said. While each country has its own concerns, Asian nations seem to be agreed on the fact that though tackling the imbalances was a priority, it should not be dictated by the US. The booming Asian economies do not want a chaotic economic