* ‘Mismatches’ indicators to be focus of debate in Paris
* Lagarde says favours freer yuan exchange rate
(Adds fresh quote, G20 source)
By Daniel Flynn
PARIS, Feb 17 (Reuters) - G20 countries will have made major progress this weekend if they clinch a preliminary accord on what measures they will use to benchmark and address mismatches in the world economy, France’s economy minister said on Thursday.
Christine Lagarde, who will host the two-day Group of 20 meeting starting later on Friday, said she also favoured a freer exchange rate for China’s yuan — the focus of heated debate between Beijing and Washington on currency valuations and their impact on trade balances.
Her remarks came amid concern that differences of opinion within the Group of 20 may prevent finance ministers from reaching agreement at the meeting on a five-item list of indicators on which to base judgments on whether countries should alter economic policy to redress imbalances.
Lagarde told an Institute of International Finance conference that France, G20 president this year, hoped a list of indicators could be agreed so that guidelines could be set to help make world growth more stable.
“This is something which is highly debated at the moment and will be in the next couple of days, because some countries do not want to be identifiable as doing such and such a policy,” Lagarde said.
“We will already have taken a big step forward if we get an agreement in principle ... on the elements that allow us to measure imbalances.”
This week’s meeting will showcase the debate on President Nicolas Sarkozy’s ambitious agenda for his G20 stewardship, which at its launch in November included proposals to curb food and fuel price volatility and gradually reduce the world’s dependence on the dollar.
Amid divisions over plans to regulate commodities markets and redraw the monetary system, France is now pinning its hopes on nailing an accord on measuring imbalances in the world economy, where the G20 nations account for around 85 percent of GDP. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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Lagarde said economic imbalances had been redressed somewhat during the major downturn of recent years but were growing again as the economy recovered.
“That can’t go on too long ... As is often the case with big imbalances, a system collapses,” she said earlier on France Info radio.
The big picture of imbalances was a world where China saved and exported, Europe consumed and the United States borrowed and consumed, and this was where the G20 needed to make progress to make sure there was an element of equilibrium, she said.
Regarding China’s exchange rate, which is closely guided by the state, Lagarde said it was in everyone’s interest to ensure a global balance.
“We can start towards that with these indicators,” she told France Info.
“It can also be addressed through monetary channels, by seeing to it for example that the Chinese currency is not as controlled as it is now and that it also becomes an international, convertible, floating currency, as are most currencies in developed countries.”
G20 countries have been working for some time on ways of working together to correct mismatches in the global economy following the worst downturn since World War Two but have yet to reach agreement on the starting point — which indicators they should base such policy decisions on.
Additional reporting by Brian Love; Editing by Catherine Bremer, John Stonestreet