‘Global economy relies on US recovery’

US President Barack Obama has stressed that both the dollar’s strength and global economic health hinge on a US recovery, in a pre-summit letter to fellow G20 leaders obtained by AFP yesterday.

“A strong recovery that creates jobs, income and spending is the most important contribution the United States can make to the global recovery,” said the letter, as Mr Obama arrived in Seoul for the two-day summit starting today.

“The dollar’s strength ultimately rests on the fundamental strength of the US economy,” he wrote, after widespread criticism from other G20 powers that his administration is trying to devalue its way back to prosperity.

Mr Obama called on the G20 leaders to endorse a stand taken last month by their finance ministers against “competitive devaluation” of currencies and “excessive imbalances” in trade between surplus and deficit nations.

The G20 should mandate the International Monetary Fund (IMF) to oversee a pact in that regard, he wrote.

“If we work together to avoid the kind of imbalances that weakened the global economy on the eve of the crisis, we will bolster the global recovery,” Mr Obama said.

After an electoral drubbing by the Republicans, spurred in part by populist anger against big-spending US policies, Mr Obama said he was “committed to an ambitious path of fiscal consolidation” as the economy perks up.

His letter did not name other countries from which complementary action is required, but the United States has long accused China of extracting an unfair edge in world trade by depressing its currency’s true value.

Mr Obama said a global economic rebalancing was needed, “along with market determination of exchange rates that reverses significant undervaluation”.

“We all now recognise that the foundation for a strong and durable recovery will not materialise if American households stop saving and go back to spending based on borrowing,” he said.

“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 own demand.”

Mr Obama also said the US would implement the “Basel Accord” on recapitalising major banks, to guard against future financial crises, on the G20’s agreed timelines over the next decade.

“But now is no time to be complacent. The market will not wait for us to finish,” he said.