G-20 Pushes Growth as Stimulus Withdrawal Backed, Draft Says

The Group of 20 will take “concrete actions” to bolster growth while backing the normalization of monetary policy in advanced economies, according to a draft communique seen by Bloomberg News.

“We commit to developing new measures to significantly raise global growth, while maintaining fiscal sustainability,” the draft for this weekend’s meeting of G-20 finance ministers and central bankers in Sydney says. “We recognize accommodative monetary policy settings in advanced economies will need to normalize in due course, in line with stronger growth.”

G-20 host Australia is pushing for a growth target, an idea that’s met with support from the International Monetary Fund and U.K. and skepticism from Germany. The draft cites analysis that ambitious policies could raise collective gross domestic product by “at least 2 percent” above the trajectory implied by current settings over five years. An official from a G-20 government told reporters that the final statement may tone down the reference to growth rates.

“While a noble goal, realistically to achieve that sort of sustainable expansion will require a lot of things to go right,” said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “Emerging markets will be disappointed that policy stimulus withdrawal is going ahead and they will continue to see volatility as the favorable conditions that drove investment in their economies wane.”

Taper Fallout

Emerging markets including India have complained that the Federal Reserve hasn’t paid enough attention to the international fallout from its decision to taper bond buying. Emerging-market stocks and currencies have fallen since the pullback was announced in December as investors turned more risk averse and punished economies with flaws such as large current-account deficits or political discord.

“Emerging markets need to take steps of their own to have their fiscal house in order, have their structural reforms in place,” U.S. Treasury Secretary Jacob J. Lew said in Sydney today. “We’re seeing substantial differentiation in the market place between economies that have made those decisions and economies that haven’t.”

Policy Calibration

The communique, which could still be changed before its official release due on Feb. 23, says market volatility can hurt growth. It reiterates a pledge by the group’s leaders in September that G-20 central banks will carefully calibrate and clearly communicate monetary policy settings.

At the same time, it says the primary response of G-20 nations to that volatility is to strengthen and refine domestic policy settings. That message was stressed by the U.K., Japan and South Korea today.

“It is important that emerging nations make efforts themselves to fix” issues like high inflation and current-account deficits, Japanese Finance Minister Taro Aso said at a press conference in Tokyo. U.K. Chancellor of the Exchequer George Osborne said in Sydney “we should all make sure we put our own houses in order” and that some countries are using the Fed’s tapering as an “excuse” for their own problems.

‘Optimum Level’

The Fed should seek consensus among central banks on “what is the optimum level of withdrawal that the world economy can manage,” India’s Economic Affairs Secretary Arvind Mayaram told reporters in Sydney. The nation’s central bank Governor Raghuram Rajan last month warned of a breakdown in global coordination due to the tapering.

China’s central bank Governor Zhou Xiaochuan told Bloomberg News there is “no big problem” for his country’s economy in maintaining steady and healthy growth. “Uncertainty is always present and there’s nothing big to worry about,” he said.

The G-20 draft welcomes recent signs of improvement in the global economy and says “some key tail risks have diminished.”

Even so, “the global economy remains far from achieving strong, sustained, and balanced growth,” the draft says. “Recent volatility in financial markets and remaining vulnerabilities within some economies highlights that important risks remain to be managed.”

‘Concrete Actions’

G-20 nations will take concrete actions to unlock private investment, lift employment and enhance trade, the draft says.

Turning to the IMF, the draft says G-20 nations “deeply regret that the IMF quota and governance reforms agreed to in 2010 have not yet become effective.”

U.S. lawmakers in January left out of a spending bill the request by the Obama administration to increase the IMF’s resources, leaving the U.S. unable to deliver on its commitment. Reforms agreed to in 2010 would boost the fund’s lending capacity and give emerging markets such as China more clout at the institution.

“Our highest priority remains ratifying the 2010 reforms,” the draft says. “We urge the U.S. to do so before our next meeting in April.”

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