Source: The Canadian Press

G20 leaders have postponed reaching a solid agreement on how to keep currencies stable and trade balances in line.

Instead, they agreed to spend well into next year talking about “indicative guidelines” — yet to be defined — that would signal to the world that a precarious economic situation is developing.

Prime Minister Stephen Harper, who set a high bar for success heading into the summit, is not hiding his disappointment.

“I think it’s fair to say we did not resolve those issues here,” he told reporters as the two-day summit wrapped up.

In the week before the summit, Harper had written to his G20 colleagues, warning that failure to take bold steps and concrete action at the summit would risk tipping the world back into financial crisis.

He said China needed to move more quickly to allow its currency to appreciate. And he said the large trade and investment imbalances that were partly the cause of the recent global financial crisis need to be constrained so that the crisis does not come back.

But now, he says he sees evidence that global leaders are all on the same page, despite the lack of quick action on imbalances or currency.

“We have got a process for continued engagement. We’ve got a timeline around that,” Harper said. “These are not going to be easy issues to resolve. But I think we’ve got everyone talking the same language.”

Canada will co-chair the process of coming to a solid agreement over the coming year, along with India. The International Monetary Fund is also being called in to help hash out a set of economic indicators that everyone can agree to use as guideposts for a stable global economy.

Leaders and their wordsmiths stayed up to the wee hours of Thursday night trying to craft a communique that would allow both the United States and China to sign on.

In the past couple of weeks, tension has run high between the United States, on the one hand, and China and other surplus countries on the other.

The United States, backed by Canada, has argued that China needs to allow its currency to appreciate and to stimulate demand from within its own economy so that the Chinese economy is not so dependent on selling exports to the U.S.

But China and other surplus countries have argued right back that the United States is destabilizing the global economy by letting the U.S. Federal Reserve inject $600 billion U.S. into the money system. They say Washington is trying to bolster economic recovery by devaluing its currency.

The rhetoric raised fears of a destructive currency war, raising the stakes for the G20 to figure out a lasting solution at the Seoul summit.

“Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions,” the G20 leaders stated in their final communique. “However, uncoordinated policy actions will only lead to worse outcomes for all.”

In their joint statement, the leaders commit to moving toward more market-based exchange rates and enhancing exchange rate flexibility.

They also promise to refrain from competitive devaluation of currencies.

And advanced economies with reserve currencies — a reference to the United States and Europe — committed to making sure they don’t do anything that would cause huge ups and downs in their exchange rates.

“These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging countries,” the communique says.

How they will go about keeping these promises, and when, is not exactly clear.

“These things don’t happen overnight,” Harper told reporters.

“What we’re trying to do is achieve something where we will maximize the potential for the global economy in the long term.”

Privately, however, Canadian policy makers have been frustrated with the lack of progress in talks to set the global economy on a solid footing. The G20 is still dealing only with how to frame their discussions on an eventual solution, and not the solution itself.

“To really realize the maximum the potential of the global economy going forward, we really do have to an agreement on this framework and a resolution of the global imbalance problem,” Harper said.

The G20 communique did show plenty of agreement on other issues. The leaders approved a new regime for banking regulations and oversight.

They also agreed to include development of poor countries in their talks, saying development should be based on open economies and entrepreneurs rather than aid.

Plus, they agreed that the Doha round of global free trade talks should be brought to a successful conclusion, possibly even next year.

Harper leaves Seoul on Friday to continue on to Japan, where he will meet other leaders at the Asia-Pacific Economic Cooperation forum. They, too, will take a go at global imbalances, but will focus mainly on trade.