Barack Obama urges global co-operation to secure growth

President Obama could face a chilly reception at the Seoul meeting

Global Economy

The global financial system and world economy are set to dominate the agenda at a meeting of the G20 in South Korea.

But there are fears the summit in Seoul could descend into a row between the US and China about so-called "currency wars" and trade imbalances.

Ahead of the meeting US President Barack Obama urged leaders to work together for global economic recovery.

But the US and South Korea failed to seal a free trade deal, in talks ahead of the main G20 meeting.

The pact was agreed three years ago, but has since stalled over US lawmakers concerns about access to South Korean markets for US beef and cars.

"We agreed that more time is needed to resolve detailed issues and asked trade ministers to reach a mutually acceptable deal as soon as possible," South Korean President Lee Myung-bak said after meeting the US president.

On a visit to a US military base in Seoul before the main G20 meetings began, Mr Obama took the opportunity to urge North Korea to engage with the international community.

"North Korea's continued pursuit of nuclear weapons will only lead to more isolation and less security," he said. "But there is another path available to North Korea."

Domestic demand

President Obama has said the US will seek to create jobs and reduce global imbalances.

Washington has blamed these in part on Beijing's alleged manipulation of its currency to help boost Chinese exports, which has led to Beijing amassing huge foreign reserves.

Others, however, say America's economic policies, specifically creating new money to pursue quantitative easing (QE), could also be a form of currency manipulation for its own ends.

Speaking to the BBC, the president of the World Bank, Robert Zoellick, said there were "definitely tensions" over currency.

What is the G20?

The G20 group comprises the world's 19 leading national economies, plus the European Union.

It was formed in 1999, and held its first meeting that year.

Until 2008 the G20 was overshadowed by the smaller G8 grouping of France, Germany, Italy, Japan, the UK, the US, Canada and Russia.

However, this has changed since the global financial crisis of 2008, and the G20 has effectively now replaced the G8 as the main global economic forum.

The major growth in the economies of G20 members China, India and Brazil has also contributed to the rising importance of the grouping.

The G20 currently meets twice a year, but this is set to reduce to one meeting from 2011.

"One has to be wary of the tensions because you don't want them to slip into protectionism," he said.

But he said that while the US raising the issue over China was "useful", he added China's next five-year plan for its economic development would focus on increasing domestic demand, adding this would be important in shifting China's growth.

Critics

At a G20 press conference, Brazil's Finance Minister Guido Mantega criticised the US central bank's latest QE programme.

"The trouble with putting an extra $600bn into the US economy is that this money will not go into production, will not create jobs and neither will it boost domestic consumption.

"With more money in the market, investors will take advantage of higher interest rates in other places, put the money into these countries' stock exchanges or invest in commodities, raising the prices and causing inflation in our countries," Mr Mantega said.

Accused of forcing the dollar down to trade its way back to prosperity, Mr Obama is expected to hold one-on-one talks with two of the strongest critics of his administration's economic direction - Chinese President Hu Jintao and German Chancellor Angela Merkel.

President Obama has said that the US alone could not restore growth but accepted the US must change, adding: "When all nations do their part... we all benefit from higher growth."

“Start Quote

Everyone agrees on the "shared interest" in finding a solution to global imbalances. The disagreement is over how - and how quickly”

End Quote

Stephanie Flanders Economics editor, BBC News

Read Stephanie's blog

However, he defended America's "decisive action to halt the fall in activity caused by the deepest crisis we have experienced in generations".

And he again called on countries not to rely on exports to pull them out of their economic problems.

"We all now recognize that the foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing.

"Yet, no one country can achieve our joint objective of a strong, sustainable, and balanced recovery on its own.

"Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their down demand," Mr Obama said.

Currency concerns

Britain's Prime Minister David Cameron also warned that China should act to correct its trade imbalance.

“Start Quote

During and after the financial crisis, world leaders huddled close, staring together over the precipice. With the danger of an immediate plunge over, they began jostling, and are now pushing. But the cliff edge is still there”

End Quote

Mark Mardell BBC North America editor

Read Mark's blog

Critics, especially in the US, have called for tariffs on Chinese imports unless the yuan is allowed to appreciate.

It is feared that other countries will rush to allow currency devaluation to also make their exports more competitive.

But China considers the exchange rate of its currency to be an internal matter and has only agreed to only gradually let the yuan appreciate.

The governor of the Bank of England, Mervyn King, has urged the G20 to agree to let current account imbalances unwind, rather than impose targets and policy instruments that could be damaging to all.

Relevant pics from Flickr