Seoul: Global leaders, including Indian Prime Minister Manmohan Singh, today pledged to refrain from competitive devaluation of their currencies and to take steps to mitigate risks arising from excessive capital flows to emerging markets.
The Seoul Action Plan, agreed at the end of the two-day Summit of the G20 leaders, called for moving towards more market-determined exchange rates.
The declaration comes amid a currency war between the US and China, which also had ramifications for India and several other countries in terms of their exports becoming uncompetitive.
Singh had earlier called for an end to competitive devaluation of currencies. "We must at all costs avoid competitive devaluation and resist any resurgence of protectionism," he said at the Summit of the leaders of the
world's most influential developed and developing countries.
The G20 group includes India, the US, China, Germany, France, Brazil, Russia and Japan.
To address the concerns of several emerging economies like India, facing flush of funds in their stock markets, the declaration agrees to strengthen global financial safety nets.
It has also asked the advanced economies including those with reserve currencies to be "vigilant against excessive volatility and disorderly movements in exchange rates."
The declaration said these steps will help mitigate the risk of excessive volatility in capital flows that are facing some emerging countries.
India, for instance, has seen rush of inflows from foreign institutional investors to the extent of USD 38 billion from January to November 11, this year.
Although Chairman of Prime Minister Economic Advisory Council (PMEAC) C Rangarajan said in New Delhi yesterday that India can absorb up to USD 70 billion inflows, concerns are often voiced on the impact on rupee value.
The country's exporters are already starting to feel the pinch of rupee appreciation on account of FII inflows. The rupee value has risen by over 5 per cent since January, reducing the net realisation for exporters.
The declaration said the financial safety nets will help countries "cope with financial volatility by providing them with practical tools to overcome sudden reversals of international capital flows."
The leaders also pledged their commitment to reform the International Monetary Fund (IMF), "that better reflects the changes in the world economy through greater representation of dynamic emerging markets in developing countries."
They said the comprehensive quota and governance reforms "will enhance the IMFs' legitimacy, credibility and effectiveness making it an even stronger institution for promoting global financial stability and growth."
To take on board concerns of the US and other western countries facing the problems of high unemployment, the leaders agreed to implement structural reforms that boost and sustain global demand and faster job creation.
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