Source: The Canadian Press

Finance Minister Jim Flaherty says Canada is apprehensive about the slowing and uneven pace of global recovery despite having weathered the recession relatively well.

He says it’s essential the G20 follow through in implementing its package of global reforms and work hard to ensure the world economy remains on “a sustainable path.”

Flaherty also warned that demand in advanced economies is expected to be subdued as consumer and investor confidence remains weak due to rising unemployment, uncertainty in financial markets and concerns over fiscal sustainability.

The comments come a day after Flaherty met with his counterparts in South Korea to lay the groundwork for the next G20 leaders’ summit which begins Nov. 11 in Seoul.

On Saturday, the G20 countries, which represent 85% of the world economy, vowed to avoid potentially debilitating currency devaluations, aiming to quell trade tensions that could threaten the global recovery.

Flaherty hinted at the dangers of currency devaluations as he cautioned against countries acting solely in their own interests.

“Without continued co-ordination to address vulnerabilities in the world economy, there is a significant risk that countries will increasingly undertake unilateral and trade-distorting measures, such as currency inflexibility and exchange rate intervention,” he said Sunday.

The weekend G20 agreement came amid fears that countries were on the verge of a so-called currency war in which they would devalue currencies to gain an export advantage over competitors — causing a rise in protectionism and damaging the global economy.

The agreement the members of the Group of 20 reached the past weekend in South Korea, though vague on enforcement and long on promises, was hailed Monday by officials and analysts as a step forward in defusing tensions.

Still, it could turn out to be nothing more than a symbolic handshake unless the disparate forum that has become the board of directors for the global economy after the 2008 financial crisis can act on its words and build a viable enforcement mechanism.

Indeed, some of the pressures that have caused global currency tensions showed no signs of easing. The dollar remained under pressure and was near a record low against the Japanese yen amid expectations the Federal Reserve will loosen its already super-easy monetary policy further next week in a bid to boost the anemic U.S. economy.

Countries in Asia and other regions have been trying to limit the strength of their currencies amid a sustained weakness of the U.S. dollar out of fear their exports will become less competitive in world markets.

At the same time, China’s currency has been effectively pegged to the dollar, provoking an outcry that it is being kept artificially low and giving China’s exporters an unfair advantage.

Over the weekend, the G20 also said it would pursue policies to reduce trade and current account imbalances that threaten the economic recovery and agreed to give developing countries more say at the International Monetary Fund.

The agreement had no specific numerical commitments but appeared to be a step forward from a similar meeting in Washington when finance officials failed to see eye to eye.

Despite the lack of an enforcement mechanism other than a promise to agree to guidelines and giving a supervisory role to the International Monetary Fund, analysts expressed some optimism that the G20 agreement at least marked a step back from potentially dangerous territory.

“I felt that the risk of an outright currency war is probably lower now,” Yiping Huang, a professor of economics at the Economic Research Center of Peking University and a former chief Asia economist for Citigroup, said Monday of his initial reading of the communique.

Still, the vagueness of the document, which lacks any numerical targets for bringing surpluses and deficits more into line, drew skepticism from some quarters.

“The agreement reached must be described as lacking in transparency in its possible effectiveness,” Japan’s conservative Sankei newspaper said in an editorial urging the United States and China — the world’s two biggest economies — to take the initiative in avoiding protectionist moves which could hurt economic growth.

The G20, which accounts for about 85% of the global economy, is made up of a wide range of countries at various stages of development. Besides the U.S., it includes the other members of the Group of Seven advanced nations, the traditional driver of the global economy. Fast-rising China, India and Brazil, as well as traditional global political heavyweight Russia are also members as are major commodity producers Saudi Arabia and Australia.

South Korean Minister of Strategy and Finance Yoon Jeung-hyun, who helped broker the weekend deal, on Monday called it a “turning point” for advanced and emerging countries to address the currency issue.

Foreign exchange analysts at Barclays Capital said in a note Monday that they were optimistic of further progress by the Nov. 11-12 leaders’ meeting, but said that the G20 will be closely watched now that the accord has been reached.

“The acid test of co-operation is whether countries adopt policies that they would not adopt on their own,” they said.

The prospect of further action by the Fed at its upcoming meeting has led to widespread fears of yet more weakness in the greenback, which continued Monday.

“The dollar has been under selling pressure due to growing speculation that the Fed may take further quantitative easing in early November,” said Yu Yokoi, a currency dealer at Mizuho Bank in Tokyo, adding that the trend shows no sign of changing even after the G20 agreement.

U.S. Treasury Secretary Timothy Geithner said Saturday after the meeting that the agreement was a landmark in that the G20 had come together and recognized that the question of imbalances must be addressed.

Ultimately, though, even he seemed to acknowledge that, for now at least, the G20 is operating on trust.

“I think this is very promising,” he said. “Of course, as in any international framework like this, the test is in what countries actually do and you have to see how countries behave over time.”

with files from The Associated Press