Group of 20 leaders are on track to end their fractious fifth summit with diminished expectations of what the relatively new assembly can achieve in the absence of a global financial meltdown to spur action.
At stake is the reputation of an organization that appointed itself the guardian of the global economy a year ago at the summit in Pittsburgh. The G20 is facing a "credibility test" in Seoul, Jose Manuel Barroso, the President of the European Commission, told reporters Thursday.
"The G20 has prevented the boat from sinking, we have picked up speed, but not all engines are working on full power," Mr. Barroso said. "The G20 must show that it is indeed the premier forum for global economic co-operation."
But a mismatch in national circumstances has proved to be a significant impediment to bridging differences over currencies, trade imbalances and other economic issues at the two-day meeting in Seoul.
Two years after their first meeting, G20 members such as China and Brazil have fully recovered from the recession, while others, including the United States and Japan, remain burdened by debt and high unemployment.
And it is the latest response from the U.S. to deal with its flagging economy that is getting much of the attention. The U.S. Federal Reserve's second round of quantitative easing is aimed at stimulating economic growth by creating $600-billion (U.S.) to buy securities. The policy is causing the U.S. dollar to weaken, stirring resentment in the countries whose currencies are appreciating.
The Fed's move cast a pall over the talks in Seoul, impeding progress on other issues, such as a pledge to boost the regulation of financial institutions that are "too big to fail." So angry are some of his G20 counterparts that President Barack Obama, over the past few days, has had to defend the Fed, an independent institution that is supposed to operate with considerable distance from politicians.
In a bid to salvage the first summit hosted by an emerging-market country, leaders were scaling back expectations as the deadline for negotiations neared, opting to paper over differences rather than risk having nothing to show for their time in Seoul but rancour and bitterness.
Mr. Obama predicted Thursday that the G20 would commit to ensure "balanced and sustainable growth" and that "it is my expectation that the communiqué will begin to put in place mechanisms that help us track and encourage such balanced and sustainable growth."
That's well short of the original U.S. proposal to limit trade-and-investment surpluses and deficits to 4 per cent of gross domestic product. The U.S. submitted the target for discussion as a way to ease tensions of foreign exchange policies. But countries with big trade surpluses such as China and Germany pushed back, countering that they were being set up to be punished for their success.
Prime Minister Stephen Harper, a fan of the U.S. proposal, also was dousing expectations. Speaking to reporters Thursday, Mr. Harper said "all have acknowledged, broadly speaking" that trade needs to be spread more evenly around the globe and that he believes the G20 will tackle the issues involved. "Will they be addressed at this conference, I'm not so sure," he said.
Divisions also were apparent in early drafts of the meeting's final statement, which is set for release after a full day of meetings on Friday. Copies of the preliminary document obtained by various news agencies showed that negotiators had made few advances beyond positions that were agreed at previous meetings.
There was no indication in the drafts that China is prepared to allow the yuan to appreciate any faster. In fact, officials were at odds over how to even discuss the issue.
The draft said nations would "refrain from competitive devaluation," but in brackets was the alternative wording "competitive undervaluation," an apparent reference to China, the Wall Street Journal reported. The U.S. has for some time insisted that the yuan is undervalued; even if it is not devalued any further, the U.S. still wants it to be allowed to rise to what it considers a fairer level.
According to reports, the draft text says G20 countries will work toward guidelines for trade balances, but stops short of making a definitive commitment, which is the compromise finance ministers made at a preparatory meeting last month.
None of this will be enough to convince investors that the "currency war" is over, a blow to South Korean president Lee Myung-bak, who pledged to end the row in Seoul.
The lack of concrete agreement will put the onus on politicians to cool their rhetoric or risk further undermining the G20 process. That won't be easy.
Even as he talked up the need for co-operation, Mr. Harper leapt to the defence of the Fed and Mr. Obama, at the risk of further alienating others. While Mr. Obama no doubt appreciated the support, the comments show that it is easier to harden divisions than it is to soften them.
Mr. Harper said the Fed, which has a mandate from Congress to foster employment, is simply doing what it must to breathe life into the sluggish U.S. economy. The prime minister chastised the Fed's critics for pointing fingers without offering other options.
"Under the circumstances, the quantitative easing policy is in the short term the only option available for the Federal Reserve and I'm not sure anyone else has provided any compelling argument as to what alternative policy they would pursue, at least in the short term," Mr. Harper said.