UPDATE 2-S.Korea's Lee hopes for progress on FX at G20

Wed Nov 3, 2010 12:14am EDT

* Lee says accord possible on guidelines, admits discrepancy

* Obama's room to negotiate may be hurt by mid-term losses (Adds quotes, analyst, details)

By Yoo Choonsik and Jeremy Laurence

SEOUL, Nov 3 (Reuters) - South Korean President Lee Myung-bak said on Wednesday he hopes G20 leaders will agree on how to draw up current account "guidelines" aimed at easing global imbalances but admitted a severe standoff between the major economies.

Lee, who will host the Nov. 11-12 summit of leaders from the Group of 20 major economies in Seoul, praised China's cooperation in reaching an agreement between the finance ministers and central bank governors last month to avert a "currency war".

"I think countries that are having a severe standoff such as the United States, Europe and China will be able to reach an agreement on the basis of the principles adopted in Gyeongju," Lee told a televised news conference.

Finance ministers and central bank chiefs from the G20 economies agreed late last month in the South Korean city of Gyeongju to shun competitive currency devaluations although they stopped short of setting targets to reduce trade imbalances. [ID:nTOE69K01G]

The United States had proposed limiting each country's current account surplus or deficit within 4 percent of its annual gross domestic product, but this was resisted by big exporters like Germany and Japan.

Analysts say however that U.S. President Barack Obama's room to negotiate will be severely hampered by losses in the U.S. mid-term elections where Democrats were swept from power in the House of Representatives. [ID:nN01179745] [ID:nSGE6A202S]

A senior U.S. Treasury official said on Tuesday that U.S. would seek support from Pacific Rim finance ministers for "concrete guidelines" to limit trade imbalances this weekend in hopes that G20 leaders can hammer out final language. [ID:nN02247270]

He said the leaders would try to adopt detailed plans on strengthening the global financial safety nets by diversifying the funding mechanisms away from the International Monetary Fund's lending facilities and helping poor nations develop.

"The development agenda (promoted by South Korea) is aimed at helping strengthening the growth potentials and the ability to grow," he said, referring to his country's proposal to find alternative ways of helping develop poor nations.

On the pending ratification of a free trade agreement with the United States, Lee said the U.S. would be sending an important message on its commitment to free trade if the two countries finally advance a pact signed three years ago.

"I believe concluding the South Korean-U.S. FTA carries an important message on free trade as far as the U.S. position is concerned," he said, while reaffirming that he hopes to finalise the deal through a meeting with Omaba on the sidelines of the G20 summit. [ID:nTOE6A2016] (Additional reporting by Jack Kim; Editing by David Chance)