Lew Freed of Default Risk Reprises Role as G-20 Growth Promoter

Treasury Secretary Jacob J. Lew, scolded on the international stage last year for the U.S. debt-limit impasse, returns to Group of 20 talks positioned to play his job’s traditional role of chief promoter of faster growth and more jobs.

Lew arrives in Sydney tomorrow for a meeting of G-20 finance ministers and central bankers amid turbulence in developing economies from Argentina to South Africa. He’s also planning separate meetings with top officials from countries including Japan, Germany, Brazil, Australia and Turkey.

The U.S. Congress last week suspended the debt ceiling through March 15, 2015, avoiding another stalemate that threatened a default on the world’s benchmark debt and clouded the last G-20 finance officials’ meeting in October. The deal gives Lew scope to press China, Japan and Europe to do more to solidify their economies and foster a more balanced global expansion as the U.S.’s growth leads major developed countries.

“Lew will certainly be in a much better position than he has been in for a while,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. “This time around it will be much more about emerging markets and potential for instability.”

The International Monetary Fund last month raised its forecast for 2014 global growth as developed nations accelerate more sharply than their emerging counterparts.

U.S., U.K.

Gross domestic product in advanced economies will rise 2.2 percent this year after a 1.3 percent expansion last year, led by the U.S. and U.K., according to the IMF’s Jan. 21 projections. Growth in developing nations will be 5.1 percent, compared with 4.7 percent in 2013, the fund said.

“The U.S. cannot grow at a rate fast enough to pull the whole world along,” Lew said in an interview with Charlie Rose on Feb. 12. “The difference between 3 percent and 3 ½ makes a world of difference in the United States, but that’s not enough to make up for losing a percent in Europe or losing a percent in China or losing a percent in Japan. So you have to look at these major parts of the world economy and say what could they do to grow more?”

In addition to the largest economies such as the U.S., China, Japan and Germany, the G-20 includes India, Brazil, Mexico, Argentina, Indonesia, Russia and Turkey.

India’s Complaints

Officials from emerging nations, including India and Indonesia, have complained about fallout of Federal Reserve policies on their economies and could raise the issue in Sydney.

Lew, 58, said he will continue his push for cooperation on global financial regulations so that so-called shadow banking can’t flourish in “lightly regulated markets, putting the rest of the world at risk.”

Lew’s international experience when he took office a year ago this month paled in comparison with his domestic background as former White House chief of staff to President Barack Obama and two-time director of the Office of Management and Budget.

His travels as Treasury chief have included four trips to Europe, two to China and one to Japan. When he went to Berlin and Paris last month to press for faster euro-area growth, he was already on familiar ground, having met with finance ministers Wolfgang Schaeuble of Germany and Pierre Moscovici of France on their home turf last year.

‘Better Position’

Lew’s work in the past year building international relationships and the strength of the U.S. economy put him “in a much better position to lead these discussions,” said David Loevinger, a managing director at Los Angeles-based investment manager TCW Group Inc. and a former senior China affairs coordinator at the Treasury who left the department in 2012.

In a Feb. 12 interview, Moscovici said Lew has a different style than his predecessor, Timothy F. Geithner, whose career before becoming Treasury secretary included stints as the department’s top international official and at the International Monetary Fund.

“Tim was very technical sometimes,” Moscovici said. “Jack is also technical, but he has maybe a broader view of politics, and that’s helpful.”

In October, the threat of a U.S. default as Congress and the Obama administration debated the debt limit cast a shadow over G-20 and IMF meetings in Washington that month. The removal of that cloud this time gives a boost to Lew and the entire global economy, Moscovici said.

Market Gyrations

The MSCI Emerging Markets Index, which covers stock markets in 21 countries, gained 2.1 percent last week, its biggest weekly advance since September. The index remains down about 4.5 percent this year.

Investors withdrew $4.5 billion from emerging-markets funds in the week through Feb. 12, extending the total outflow this year to $29.7 billion, according to Barclays Plc, which cited data provider EPFR Global. In 2013, $29.2 billion left funds investing in emerging-market assets.

The volatility will be a focal point in Sydney, according to a Treasury official who briefed reporters on condition of anonymity Feb. 14. The U.S. will seek a robust discussion of global economic imbalances as some countries revert to a pre-financial crisis strategy of using exports to boost growth, the official said.

In a letter Feb. 18 to his G-20 colleagues, Lew called on countries with current-account surpluses to boost domestic demand and adhere to “market-based exchange rates that facilitate, rather than frustrate, the international adjustment process.”

Fed Tapering

The Fed’s recent moves to reduce stimulus, blamed for contributing to the rout in emerging-markets stocks and currencies early this year, are at the center of the G-20’s debate over maintaining global market stability.

Lew argues that the countries being punished most by investors are those that haven’t taken care of their economic fundamentals.

“It is important not to look at them in a group -- you have to look at them individually,” Lew said in the Rose interview. “What we have seen in these last months is real differentiation between countries that have taken tough policy decisions to have fiscal policies and structural reforms in their markets” and those that haven’t. He didn’t name the laggards.

Officials such as India’s central bank Governor Raghuram Rajan, who complained about the impact of the Fed’s decision in December to start reducing the monthly pace of asset purchases, aren’t likely to leave satisfied, said Steven Englander, global head of Group of 10 foreign-exchange strategy for Citigroup Inc. in New York.

The Group of 20 “may give them some sort of comfort message in the sense that the U.S. is aware and has global growth on its radar screen,” Englander said. “They will not say anything committal, but they may say something gently.”

To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Kasia Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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