Wide differences between rich and poor countries may frustrate France's hope of taking a bold step toward stabilizing the global economy at a Group of 20 finance ministers meeting this week.

The two-day talks in Paris will launch debate on French President Nicolas Sarkozy's ambitious agenda for his country's year-long presidency of the G20. The agenda includes grand proposals to curb the volatility of food and fuel prices and to reduce gradually the world's reliance on the U.S. dollar.

Amid divisions over plans to regulate the commodities markets and confusion over rhetoric on monetary reform, France is pinning its hopes for this week's meeting on one main issue: agreeing on indicators to measure dangerous imbalances in the world economy.

G20 leaders asked France last year to forge a consensus on these indicative guidelines, as a way to defuse tensions between Washington and Beijing over exchange rates, and as a first move toward a framework for more stable, predictable growth of the world economy.

But emerging economies, in particular China, are opposing ideas that might limit their external surpluses. So G20 officials are already hinting that a deal on the guidelines may have to wait, at least until the group's next ministerial meeting in mid-April in Washington.

China exports and saves, Europe consumes and the United States prints money and consumes. Is that a balanced model? asked French Economy Minister Christine Lagarde on Monday.

Our hope is to reach agreement on indicators as soon as Saturday. If we do not, it's not a drama, she said, noting that the French G20 presidency runs until November. France has the luxury of time.

Two years after the G20 put together a grand plan to haul the world out of recession, the easing of the global crisis seems to have reduced its sense of urgency and revived divergent interests within the group, which accounts for over four-fifths of the world's economic output.

A dispute between Washington and Beijing over the valuation of China's yuan is set to resurface when ministers discuss the economic picture at a dinner on Friday. U.S. Treasury Secretary Timothy Geithner suggested last week that he had Brazil's backing in seeking faster yuan appreciation.

A U.S. Treasury Department official told reporters on Tuesday that undervalued currencies impede other countries trying to put in place needed policy adjustments,

G20 members need to free up exchange rates to facilitate adjustment, the official said. For the global adjustment process to work all major economies must allow their currencies to adjust in line with market forces, or risk imposing excess burdens on others.

A Canadian official said that while the G20 will be urging freer floating currencies, it was unlikely any single country will be singled out. China is the usual target of other G20 members' criticisms over limits on its currency's rise.

Washington may itself be criticized for its huge budget deficit, seen as another threat to global stability despite President Barack Obama's pledge on Monday to halve it by 2013 in line with commitments to the G20 last year.

Rising concern about inflation from Frankfurt to Beijing has also prompted criticism of the U.S. Federal Reserve's latest round of emergency monetary easing, which developing nations blame for upward pressure on their currencies and asset prices.

The heads of the world's biggest central banks will meet in Paris but they seem unlikely to agree on any common action to fight inflation, since they face different domestic challenges and have different policy mandates.

Last month European Central Bank President Jean-Claude Trichet publicly criticized the idea of using core inflation, which strips out food and energy, when setting policy; this was widely seen as a swipe at the U.S. Fed, which has been looking at core inflation.

CLASHES OVER INDICATORS

Officials say a basic agreement exists that government debt and deficit levels must be at the core of G20 economic guidelines. But Brazil, Russia, India and China, which will hold their own talks on the sidelines of the G20 meeting, are resisting pressure from developed countries to agree to a longer list, including inflation-adjusted exchange rates, the adequacy of countries' reserves, and net foreign assets.

We expect the biggest clashes (at the meeting) about the indicators, said Russian Deputy Finance Minister Dmitry Pankin. We doubt you can determine which countries have a dangerous macroeconomic policy based on a set of indicators. Rather, you need a complex analysis of the situation in any given country.

China in particular is seeking to be assessed on its trade surplus, which it has pledged to reduce progressively, rather than its current account, which includes interest payments on nearly $3 trillion in reserves accumulated over many years.

The Chinese keep dragging their feet...They keep throwing sand in the wheels, said one source close to preparatory talks.

France has proposed adding the yuan to the basket of four currencies used to value Special Drawing Rights (SDRs), a notional currency created by the International Monetary Fund. This could entice China to make its currency fully convertible, which would likely involve faster yuan appreciation and therefore cut China's external surpluses.

But while some countries like the idea in principle, others are less enthusiastic; an official in India suggested it would give its rival too much clout. Also, major technical issues would have to be resolved to expand SDRs. So this week's meeting is not expected to come close to agreement on the issue.

Officials meanwhile acknowledge there is little interest in several of France's more ambitious ideas, such as using SDRs as a reserve asset to diversify away from the dollar, empowering the IMF to act more flexibly as a global lender of last resort, and levying a financial trading tax to meet rich nations' pledge of $100 billion in aid to address climate change from 2020.

CAPITAL CONTROLS

After a sharp rise in capital account crises since the mid-1990s, France has said it sees support for the idea of a code of conduct that would specify how countries can impose short-term capital controls to protect themselves.

If we want to reduce accumulation of foreign reserves, we have to create a climate of confidence which allows developing countries not to hoard them, Lagarde said.

This week's meeting is expected to discuss preliminary proposals for the code of conduct, but a final decision will probably have to wait until later this year, and even then there will be doubts over how closely countries will adhere to the code in an emergency.

France is also likely to face a long, tough battle to win backing for its quest to curb volatility of agricultural commodity and energy prices by improving the transparency of inventory data and limiting speculation in financial markets.

The United States, Brazil and Canada, major producers of foods, metals and other commodities, have all made a point in recent days of publicly opposing the French push.

(Reporting by G20 bureaux;)

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