The world needs to adjust to the Federal Reserve’s tapering, Australian Treasurer Joe Hockey said, backing a stimulus reduction by the U.S. that sparked market turmoil and emergency measures in some emerging markets.
“It’s not something that hasn’t been foreshadowed,” Hockey said in an interview in Canberra yesterday. “The world can no longer rely on methadone every day. Sooner or later we need to wean ourselves off and that’s what tapering is about.”
Policy makers in developing markets including Turkey and South Africa have been forced into emergency steps as investors sold off currencies, stocks and bonds after the Fed’s decision to scale back asset purchases. Hockey, whose government’s role as host of the Group of 20 nations this year starts with the finance ministers’ and central bankers’ meeting in Sydney on Feb. 22-23, said the Fed was within its rights to cut stimulus.
“Our own central banks have the responsibility to act in our own national interests,” he said. “It’s a balancing act. The U.S. Fed can speak for itself, but I don’t see any systemic difficulties in developing nations.”
Federal Reserve Bank of St. Louis President James Bullard on Feb. 12 said Fed officials will probably be careful about altering the pace of their reductions to bond buying because of a potentially significant impact on markets. A day earlier, Fed Chair Janet Yellen signaled the bar is high for changing her predecessor’s policy of trimming stimulus in “measured steps.”
Policy makers including India central bank Governor Raghuram Rajan have warned of a breakdown in global coordination due to the tapering. Fed officials in December announced a $10 billion reduction in monthly asset purchases, and repeated the move last month with a cut of the same size to $65 billion.
Asian stocks rose today, with the regional benchmark index heading for its first weekly advance this year. Global equity losses in 2014 peaked at $3 trillion on Feb. 4 and have narrowed to about $500 billion, data compiled by Bloomberg show, as volatility in emerging markets abated.
Hockey, whose Liberal-National coalition won the election in September, called on its ally the U.S. to stick to a 2010 pledge to help double the International Monetary Fund’s lending capacity to about $733 billion.
“Australia is a very good friend of the U.S.,” Hockey, 48, said. “We call each other mates and we are mates but a good mate calls it as they see it. It is important for the U.S. Congress to pass the IMF reforms that deliver the reform agenda because it sends a message to the world that the U.S. is a very active and engaged global citizen.”
Australia’s term as host of the G-20, culminating in November’s leaders’ summit in Brisbane, will focus on issues including cutting tax avoidance in the digital economy by multinational companies, reducing the threat of shadow banking, and promoting more private-sector involvement in infrastructure building -- an agenda Hockey described as “realistic.”
“Growth is the primary focus” of the G-20, he said. “We need to grow the global economy. The private sector needs to do the heavy lifting. The private sector right around the globe is very cashed up and governments now have to get out of the way of new investment. They need to facilitate investment that actually creates jobs.”
Echoing that view, South Korea will focus economic policy on activating domestic demand, creating more jobs and improving its economic structure, Finance Minister Hyun Oh Seok said in a speech in Seoul today. Emerging market instabilities may hurt investment activity, he said.
The IMF last month called on some developing countries to take action to “improve fundamentals.”
Domestically, Hockey has his own concerns. Australia’s statistics bureau yesterday announced the unemployment rate unexpectedly climbed in January to 6 percent, the highest in more than 10 years. That comes days after Toyota Motor Corp., with about 2,500 manufacturing employees in the country, said it will stop building cars in Australia in 2017, spelling the end of the local auto industry after Ford Motor Co. and General Motors Co. announced last year they also plan to pull out.
Australia’s economy -- the world’s 12th-largest -- escaped the 2009 global recession, boosted by the biggest mining investment boom in a century. That’s now waning, forcing a need for policies to ensure continued growth, Hockey said.
“The Australian economy continues to grow, and comparatively grow quite strongly,” he said. “We’ve just got more microeconomic reforms to undertake to make sure we sustain that growth.”
The Aussie climbed almost 50 percent in the four years ended Dec. 31, rendering some export industries uncompetitive. It has fallen about 15 percent since April, easing pressure on industries like tourism and aiding the central bank’s effort to rebalance the economy away from resource investment.
Australia’s weaker exchange rate will help accelerate the country’s return to trend economic growth and is likely to spur inflation for a period, central bank Assistant Governor Christopher Kent said in a speech in Sydney today.
The Aussie was at 90.19 U.S. cents at 12:34 p.m. in Sydney.
“Inevitably the Australian dollar will find the right place that is acceptable to the market,” Hockey said. “Whatever its variation, we’ve got to deal with it. Our currency is able to act as a shock absorber for the economy.”