Developed nations are voicing support for the withdrawal of U.S. monetary stimulus and signaling emerging markets will have to cope with the fallout as best as they can.
German Chancellor Angela Merkel’s administration sees U.S. monetary normalization as necessary, a government official told reporters in Berlin overnight. The comment echoes Australian Treasurer Joe Hockey, who in a Feb. 13 interview likened Federal Reserve bond purchases to a drug that the world can’t rely on forever.
Market upheaval caused by reduced Fed stimulus is shaping up as a central theme for a Group of 20 meeting in Sydney this weekend, when central bankers and finance ministers will discuss the global economy. 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.
India’s central bank Governor Raghuram Rajan last month warned of a breakdown in global coordination due to the tapering.
It’s up to each individual country to ensure it is robust enough to cope with the normalization of U.S. monetary policy, the Berlin official said on condition of anonymity. While the G-20 will discuss how emerging economies can prepare for the change, politicians shouldn’t interfere with the policies of independent central banks, the official said.
“Our own central banks have the responsibility to act in our own national interests,” Australia’s Hockey said Feb. 13. “It’s a balancing act. The U.S. Fed can speak for itself, but I don’t see any systemic difficulties in developing nations.”
Finance ministers and central bankers will discuss the global economy at a time of “great transition” as the U.S. tapers stimulus, South Korean Finance Minister Hyun Oh Seok said in a briefing in Sejong today.
Former U.S. Federal Reserve Chairman Paul Volcker told a conference in Seoul this week that the impact of tapering won’t be as bad as markets fear and that stimulus won’t be withdrawn quickly, the Korea Economic Daily newspaper reported.
Still, former World Bank President Robert Zoellick said in Seoul today there will be greater differentiation among developing countries once the Fed begins tapering in earnest. This year will be tricky for the world economy, he said.