By Howard Schneider and Scott Wilson
Washington Post Staff Writers
Friday, November 12, 2010; 4:25 PM
SEOUL - President Obama asserted Friday that the punishment his party took in midterm elections has not damaged his ability to advance U.S. interests overseas, saying his Asia trip has shown that many countries still want to work with the United States.
In a news conference following the Group of 20 summit, Obama said the United States, while still the world's most powerful economy, can no longer dictate the terms of how the world does business, especially after a global economic turndown that many blame on American policies.
But he said his relationships with fellow heads of state have evolved during his two years in office - relying less on the novelty of his election and the enthusiasm it generated than on a shared view of where the global economy should be heading.
The G-20 leaders agreed Friday to establish a set of guidelines to shape their national economic policies but deferred the substance of the work amid uncertainty about how effective the effort will prove in practice.
Advocates called the agreement a concrete step toward more global cooperation, committing each country to be evaluated by a common set of standards meant to identify trouble spots in the global economy and show how each nation's policies affect the others.
It rests, however, on an untested premise - that nations are willing to act against their short-term interests for the good of other countries, in order to promote steady and persistent economic growth that will be better for the world overall.
The premise speaks to the president's faith in a multipolar planet - that China, for example, might free some of its trillions of dollars in reserves in a way that puts Americans back to work and boost global growth. But Obama himself called some of the most important elements of the agreement "a work in progress."
"We've laid out the steps we must take to realize the balanced and sustained growth that we need," Obama said. "And now and in the days ahead, these are the commitments that we're going to have to meet."
An Illinois state senator just four years before his election, Obama arrived at his first G-20 conference in London last year to enormous enthusiasm, not only from an international public and press corps eager to see the first African American president of the United States, but from world leaders frustrated by the Bush administration's disdain for international forums and alliances.
His reception at this one was far more muted. Obama said the "hoopla surrounding my election" has given way to "genuine friendships," citing strong bonds with such G-20 leaders as Indian Prime Minister Manmohan Singh, German Chancellor Angela Merkel, Prime Minister Recep Erdogan of Turkey and South Korean President Lee Myung-bak.
Having good relations, however, "doesn't mean that there aren't going to be differences," Obama said. For example, despite days of negotiation by their staffs, Obama's and Lee's effort to strike a South Korea-U.S. trade deal foundered.
The group gathered in Seoul amid talk of a "currency war," tensions between the U.S. and China over exchange rates and monetary policy, and worry about rising protectionism. Obama cited as one challenge his interaction with Chinese President Hu Jintao, whose policy of keeping the Chinese currency high hurts U.S. exports in China's growing middle-class market.
"It wasn't any easier to talk about currency when I had just been elected and my poll numbers were at 65 percent than it is now," Obama said. "It was hard then and it's hard now. Because this involves the interests of countries and not all of these are going to be resolved easily."
But Obama said he thought the G-20 gathering went far toward creating a strong new process for synchronizing global economic policy: "The fact is that 20 major economies gathered here are in broad agreement on the way forward."
The heavy lifting involved in enacting the international guidelines is still to come, as nations wrestle over what economic statistics to monitor - from exchange rates to foreign reserve holdings to broader measures like current accounts - and how to define when they are out of line and what to do about it.
A group of the countries' finance ministers, working with the International Monetary Fund, will begin drafting "indicative guidelines" in coming months. Eventually the IMF will assess the G-20 economies against those standards.
Obama said a recent Federal Reserve decision to add more money to the financial system is distinct from the "competitive devaluation" that all the countries foreswore in the G-20 agreement. China has used such devaluation, U.S. officials argue, to advance its exports.
The Fed decision, Obama said, "was not one designed to have an impact on the currency, on the dollar. It was designed to grow the economy." Obama said.
"And there's some legitimate concern that we've had very low inflation, that a huge danger in the United States is deflation, and that we have to be mindful of those dangers going forward because that wouldn't be good for the United States or for the rest of the world."
As the session closed, U.S. officials emphasized they felt China's policies were moving in the right direction, its exchange rate had been rising more steadily in recent months, and that the country was making progress on economic issues of concern to the U.S.
Obama left Seoul after the news conference to travel to Japan, where he will end his Asia trip.
The final G-20 statement reiterated prior pledges for nations to curb deficits and move towards more flexible exchange rates - standard principles for the group. It also encouraged countries with widely used currencies, such as the United States, to "be vigilant against excess volatility," a nod to concerns that loose U.S. monetary policy could stoke inflation or asset bubbles in emerging markets.
The agreement is a middle ground between the more precise economic targets suggested by the United State as a way to influence China's currency management and other practices, and the backlash against the idea led by countries, notably China and Germany, that rely heavily on exports. The G-20 comprises the world's major developed economies and its largest emerging market nations, and accounts for the bulk of world economic activity.
In a report issued during the meeting, the IMF warned that the same lopsided trade and investment flows that occurred before the recent global financial crisis, and subsequent international recession, are beginning to reappear.
And they are projected to get worse, the IMF said, if countries don't enact policies that cause export-dependent nations to spend more for other countries' products, and at the same time lead countries with large deficits to save and invest more.
Flagging those sorts of "imbalances" is the main thrust of the new guidelines. While potentially significant, IMF director Dominique Strauss-Kahn said it remains to be seen whether the new guidelines will work.
"We'll see after six months, a year, two years, if we can give some reality to the process," Strauss-Kahn said.
The G-20 leaders also endorsed an overhaul of the IMF's structure to give more influence to emerging-market countries, and backed the new capital requirements for banks drafted by a committee of central bank heads working out of Basel, Switzerland.
In addition, the group agreed to push ahead with proposals by the Financial Stability Board to create even stiffer capital rules and regulatory oversight for the largest financial institutions, an effort to prevent future public bailouts of companies considered "too big to fail."
The agreement on economic standards was hailed by the South Korean president, who had taken a personal stake in ensuring the event didn't collapse as tensions rose over currency and other issues. It is the first such gathering hosted by a country that is not a member of the Group of Eight, mostly Western, industrialized nations.
If there was a message, Lee said, it's that "we are all in the same boat. ... We will agree on a set of rules and common objectives."
The details of the framework might not fall into place quickly, said a senior U.S. official, but the intent was a structure that would work "for the long term. We are playing for consensus. You can't force it."