G-20 Meeting Guide From Emerging-Market Gripes to Currencies

Photographer: Ian Waldie/Bloomberg

The logo for the 2014 Group-of-20 (G-20) Australia summit is displayed at an Institute of International Finance conference ahead of a G-20 Finance Ministers and Central Bank Governors meeting in Sydney. Close

The logo for the 2014 Group-of-20 (G-20) Australia summit is displayed at an Institute... Read More

Photographer: Ian Waldie/Bloomberg

The logo for the 2014 Group-of-20 (G-20) Australia summit is displayed at an Institute of International Finance conference ahead of a G-20 Finance Ministers and Central Bank Governors meeting in Sydney.

Here’s what to look out for when finance ministers and central bankers from the Group of 20 nations meet in Sydney this weekend. Federal Reserve Chair Janet Yellen, European Central Bank President Mario Draghi and U.S. Treasury Secretary Jacob J. Lew are among those set to attend.

Policy makers are expected to discuss the state of the global economy, infrastructure and taxation issues. A communique will be released on Feb. 23.

-- Yellen on defensive: Policy makers in emerging markets who criticized the Fed for quantitative easing are now dealing with market and economic volatility as stimulus is withdrawn. Don’t expect U.S. officials to take complaints lying down, said Citigroup Inc. analysts Todd Elmer and Steven Englander.

-- “The U.S. wants to avoid criticism on tapering and score a few points with respect to inadequate stimulus abroad, the need for structural reform, and undervalued exchange rates,” Elmer and Englander wrote in a note. “This is unlikely to play well, and the U.S. will be on the defensive, despite its pre-G-20 posturing.”

-- Unhappiness over tapering from emerging countries is unlikely to produce any impact on the course of Fed policy, and China knows that, said Ding Yifan, a researcher with China’s Development Research Centre, a body operating under the country’s State Council.

-- “It’s more meaningful to talk about growth and jobs than to point fingers at each other at the meeting,” Ding said in an interview. “The U.S. needs jobs and growth, so does China and every other member of the G-20.”

Global Imbalances

-- Global rebalancing: The G-20 meeting will seek to return the agenda to addressing global imbalances as growth in many countries shows signs of improving, according to analysts at Nomura Holdings Inc. and DBS Group Holdings Ltd.

-- “With advanced economies no longer pushing for more monetary easing, surplus economies will be urged to do more to boost domestic demand, and increase purchasing power via exchange rates,” DBS analysts wrote. “Germany will be urged to boost domestic demand to help pull up their weak southern peers. Over the weekend, America wants Germany and China to rely less on exports to boost growth.”

-- The cases pushed by some emerging markets that are more exposed to volatility is “too flimsy” to detract from the need for them to rebalance their economies, said Peter Attard Montalto, a London-based emerging-markets economist at Nomura.

No Crisis

-- “There is simply not enough of a crisis in emerging markets at present for international financial institutions or developed markets to accept the need for global rebalancing to be altered,” Montalto wrote.

-- Glass houses: While officials have said currencies will be a topic of discussion, those expecting group action on exchange rates are going to be disappointed, according to Citigroup’s Elmer and Englander. The G-20 probably will stop “well short” of even singling out offenders on currencies, they said.

-- “Too many countries are pursuing policies of currency weakness for them to be overly critical of their peers,” Elmer and Englander said. “There are countries that have no incentive to change their policies, so they won’t, and policy makers that have no particularly good policy options so they will muddle on as best as they can. G-20 doesn’t change the realities they face.”

Infrastructure Investment

-- Infrastructure: Australia’s host-nation agenda includes aiming to coordinate strategies for debt-laden countries across the world with aging roads and bridges to invest in new projects. It will encourage member nations to look at “how we can better facilitate private investment in infrastructure, both in the developing world and the developed world,” Treasurer Joe Hockey said in an interview.

-- Hot topics: The G-20 will focus on taxation reform after it made some progress in recent years on issues such as tax havens as well as cross-border corporate tax treatment, according to Nomura.

-- “Further work on commodity prices and markets will likely be discussed, but an implementable policy looks still some way off,” Montalto said. “Financial sector reforms, especially in the context of the asset quality review and the moves many countries have made in establishing domestic financial stability boards, will likely be a hot topic, along with some technical issues around capital and liquidity that have recently been discussed at Basel.”

Reform Process

-- Unfinished reforms: A focus by the G-20 this year should be finishing the job on financial regulation, especially on the too-important-to-fail problem, said Jose Vinals, financial counselor and director of the monetary and capital markets department at the International Monetary Fund.

-- “The reform process has gradually moved the global financial system to a better place,” Vinals wrote in a blog post. “It is now safer than before the crisis -- but not yet safe enough. By removing this Damoclean sword hanging over the modern financial system, policy makers could score an epic financial stability victory.”

-- IMF reform: Volatility in emerging markets and the role of the IMF will be discussed, said University of New South Wales’s Australian School of Business Professor Fariborz Moshirian. The U.S. seems to have prevented the IMF from giving emerging markets such as China, Brazil and India greater say in the fund’s operations, he said.

IMF Reform

-- “Don’t think for a second that we’re just going to agree with our great mates in the U.S. on everything,” Australia’s Hockey told reporters in Sydney yesterday. “I’ve written op-eds and contacted congressmen directly seeking to have them initiate the changes that are necessary so that the U.S. can support the reform of the IMF to give developing countries in particular a greater voice. Now, that will come up in discussions again this weekend, but the beauty of these forums is that you can be frank and honest with each other.”

-- Low Expectations: In the absence of a global crisis, some analysts are predicting a low-key G-20 meeting.

-- “The G-20 looks increasingly as if it is just going through the motions, without any conviction that it will achieve anything substantive,” said Andrew Kenningham, senior global economist at Capital Economics in London. “For many G-20 officials, the trip to Sydney may seem like a very long one to make when the potential rewards appear so limited.”

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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