Obama seeks co-operation at G20

The global financial system and world economy are set to dominate the agenda at a meeting of the G20 in South Korea.

But there are fears the summit in Seoul could descend into a row between the US and China about so-called "currency wars" and trade imbalances.

Ahead of the meeting US President Barack Obama urged leaders to work together for global economic recovery.

But the US and South Korea failed to seal a free trade deal, in talks ahead of the main G20 meeting.

The pact was agreed three years ago, but has since stalled over US lawmakers concerns about access to South Korean markets for US beef and cars.

"We agreed that more time is needed to resolve detailed issues and asked trade ministers to reach a mutually acceptable deal as soon as possible," South Korean President Lee Myung-bak said after meeting the US president.

He also said the US remained open to negotiations with North Korea to end its nuclear programme as long as Pyongyang showed "seriousness of purpose".

Domestic demand

In a joint news conference with the South Korean president, Mr Obama said the final communique of the G20 summit would include mechanisms to promote balanced and sustainable international economic growth.

He earlier said the US would seek to create jobs and reduce global trade imbalances.

Washington has blamed these in part on Beijing's alleged manipulation of its currency to help boost Chinese exports, which has led to Beijing amassing huge foreign reserves.

Others, however, say America's economic policies, specifically creating new money to pursue quantitative easing (QE), could also be a form of currency manipulation for its own ends.

Speaking to the BBC, the president of the World Bank, Robert Zoellick, said there were "definitely tensions" over currency.

"One has to be wary of the tensions because you don't want them to slip into protectionism," he said.

But he said that while the US raising the issue over China was "useful", he added China's next five-year plan for its economic development would focus on increasing domestic demand, adding this would be important in shifting China's growth.

Critics

At a G20 press conference, Brazil's Finance Minister Guido Mantega criticised the US central bank's latest QE programme, saying it would not boost production or create jobs in the US.

Instead, he said, it would push money into countries with higher interest rates and cause inflation.

Accused of forcing the dollar down to trade its way back to prosperity, Mr Obama is due to hold one-on-one talks with two of the strongest critics of his administration's economic direction - Chinese President Hu Jintao and German Chancellor Angela Merkel.

President Obama has said that the US alone could not restore growth but accepted the US must change, adding: "When all nations do their part... we all benefit from higher growth."

However, he defended America's "decisive action to halt the fall in activity caused by the deepest crisis we have experienced in generations".

And he again called on countries not to rely on exports to pull them out of their economic problems.

"We all now recognize that the foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing.

"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 down demand," Mr Obama said.

Currency concerns

Britain's Prime Minister David Cameron also warned that China should act to correct its trade imbalance.

Critics, especially in the US, have called for tariffs on Chinese imports unless the yuan is allowed to appreciate.

It is feared that other countries will rush to allow currency devaluation to also make their exports more competitive.

But China considers the exchange rate of its currency to be an internal matter and has only agreed to only gradually let the yuan appreciate.

The governor of the Bank of England, Mervyn King, has urged the G20 to agree to let current account imbalances unwind, rather than impose targets and policy instruments that could be damaging to all.