Global finance chiefs sought to reinforce the global economic recovery by promising “carefully calibrated” policies that won’t spook markets.
The Group of 20 nations heeded calls from emerging-market countries to guard against shockwaves when U.S. growth is secure enough for the Federal Reserve to cut back on its bond buying, according to a statement issued in Moscow yesterday. They also repeated that nations should move quickly toward market-based exchange rates and avoid competitive devaluation.
“Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated,” according to the statement issued after finance ministers and central bankers concluded two days of talks. “We reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.”
The G-20 also backed the Organization for Economic Cooperation and Development’s plan for revamping global tax codes. The endorsement gives a boost to the Paris-based OECD’s efforts to prevent the largest companies from using complicated ownership structures and transfer pricing to avoid paying taxes where they do most of their business.
“The tax agreement stands out, but the devil is in the details,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York. “Exactly how it will be implemented is not clear.”
Speculation about developed economies scaling back their unprecedented monetary easing has roiled emerging-market currencies and bonds since G-20 finance chiefs last met in April. From South Korea to South Africa, anticipation that the Fed would soon pare back its quantitative easing efforts drew calls for coordination so as not to squelch global demand.
“We really focused on growth and employment and what is the policy mix that will help improve growth encourage and create jobs,” International Monetary Fund Managing Director Christine Lagarde said in an interview with Bloomberg Television. “Central banks share that concern.”
The improving U.S. economy means a shift in Fed policy is coming and it will need to take place “in the proper manner,” Indonesian Finance Minister Chatib Basri said.
“The question is about the pace,” he said in an interview. “Of course we have to wait for what will happen in the next couple of months.”
Global yields surged and equities fell after Fed Chairman Ben S. Bernanke signaled on June 19 the U.S. central bank may start tapering its monthly stimulus program this year. U.S. 10-year yields, which climbed 36 basis points in June, have pared increases over the past two weeks as Bernanke eased those concerns in recent appearances.
“We’ve all learned something from this,” Bank of Canada Governor Stephen Poloz said. A certain amount of reaction “is inevitable. You have to be mentally prepared for that and continue to emphasize that message and be very clear.”
A U.S. Treasury Department official said the G-20 recognized that financial-market volatility has returned to normal. The official acknowledged a lot of interest in U.S. monetary and fiscal policy, while reiterating Washington’s call to do more to help the euro zone emerge from recession.
According to the final statement, G-20 nations will offer “credible, ambitious” fiscal strategies when leaders meet in St. Petersburg in September. Those strategies must be “sufficiently flexible to take into account near-term economic conditions” while also making debt levels more sustainable, according to the statement.
Germany had sought tougher language that would require medium-term budget targets and push the U.S. and Japan to follow through on previous commitments, said an official from a G-20 country. Germany in turn came under fire from the U.S. and South Korea, who pressed Europe to prioritize growth over debt-cutting measures.
The G-20 hasn’t yet decided if these targets will be binding, a second official said. Leaders will use the September summit to decide how to proceed on the fiscal strategies, said the official, who declined to be identified because the talks aren’t public.
The G-20 acknowledged that global risks aren’t confined to Europe, German Finance Minister Wolfgang Schaeuble told reporters after the meeting.
“The global risks are widespread, and no longer, as in former years, only focused on the euro zone, and this view is also shared by all my colleagues,” he said.
The G-20 said in its final statement that the U.S. and Japanese economies are strengthening, while growth slows in emerging markets and the euro area remains mired in recession.
Bank of Japan Governor Haruhiko Kuroda said “understanding is deepening on BOJ’s qualitative and quantitative easing.” Monetary easing is steadily achieving its goal of boosting the economy, he told reporters.
The G-20 promised that countries will aim their policies to prevent damage across borders.
“Monetary policy should be directed toward domestic price stability and continue to support economic recovery according to respective mandates of central banks,” the G-20 said in the statement. “We will continue to monitor financial-market conditions carefully.”