G-20 fi­nance chiefs want gov­ern­ments do­ing more

Business Mirror - - BM REPORTS -

FI­NANCE chiefs from the world’s top economies com­mit­ted their gov­ern­ments to do­ing more to boost global growth amid mount­ing con­cerns over the po­tency of mon­e­tary pol­icy.

In a pledge that will prove eas­ier to write than de­liver and may dis­ap­point in­vestors look­ing for a co­or­di­nated stim­u­lus plan, the Group of 20 (G-20) said, “we will use fis­cal pol­icy flex­i­bly to strengthen growth, job cre­ation and con­fi­dence.” Af­ter a two- day meet­ing in Shang­hai, fi­nance min­is­ters and cen­tral bank gov­er­nors also dou­bled down on a line from their last gath­er­ing that “mon­e­tary pol­icy alone can­not lead to bal­anced growth.”

For those few an­a­lysts call­ing for a 1985 Plaza Ac­cord- type agree­ment to ad­dress ex­chang­er­ate ten­sions, there was no such luck: In­ter­na­tional Mon­e­tary Fund Man­ag­ing Di­rec­tor Chris­tine La­garde said there were no dis­cus­sions about any­thing like that. The G-20 mem­bers did reaf­firm they will re­frain from com­pet­i­tive de­val­u­a­tions, and— in new lan­guage— agreed to con­sult closely on cur­ren­cies.

Reach­ing limit

AN in­creas­ing sense, mon­e­tary pol­icy is reach­ing its limit per­me­ated of­fi­cials’ brief­ings dur­ing the meet­ings that ended on Satur­day. While cen­tral banks proved crit­i­cal in avoid­ing a global slide into de­pres­sion last decade, there is now no con­sen­sus among the world’s top eco­nomic guardians back­ing stepped- up mon­e­tary stim­u­lus. That leaves fo­cus on fis­cal poli­cies that are sub­ject to do­mes­tic political con­straints, and a struc­tural- re­form agenda the G-20 said will be gauged through a new in­di­ca­tor sys­tem.

“Cen­tral bankers have done their bit in re­cent years to sta­bi­lize the world econ­omy,” said Fred­eric Neu­mann, co­head of Asian eco­nomic re­search at HSBC Hold­ings Plc. in Hong Kong. “But as their tools are los­ing their ef­fec­tive­ness, only more ag­gres­sive fis­cal pol­icy and struc­tural re­forms will help to lift growth.”

Among those pub­licly in­di­cat­ing a po­ten­tially re­duced role for cen­tral banks was La­garde, who said on Fri­day the ef­fects of mon­e­tary poli­cies, even in­no­va­tive ones, are di­min­ish­ing. Bank of Eng­land Gov­er­nor Mark Car­ney used a Shang­hai speech ahead of the G-20 to voice skep­ti­cism over neg­a­tive in­ter­est rates— now in place in con­ti­nen­tal Europe and Ja­pan— and their abil­ity to boost do­mes­tic de­mand.

Neg­a­tive spillovers

FOR his part, Chi­nese Premier Li Ke­qiang, speak­ing in a pre­re­corded video at the G-20, said quan­ti­ta­tiveeas­ing pol icies can’t re­move struc­tural ob­sta­cles to growth and may lead to neg­a­tive spillovers. The Peo­ple’s Bank of China has been us­ing more ortho­dox tools to sup­port fis­cal spend­ing and struc­tural re­forms.

Adding to an at­mos­phere of un­ease about fur­ther cen­tral bank ac­tions, some of­fi­cials ex­pressed con­cern about Ja­pan’s poli­cies, af­ter its sur­prise move to adopt neg­a­tive in­ter­est rates last month roiled the cur­rency mar­ket.

“The de­bate was also about Ja­pan, to be hon­est—there was some con­cern that we would get into a sit­u­a­tion of com­pet­i­tive de­val­u­a­tions,” Eurogroup chief Jeroen Di­js­sel­bloem, who heads gath­er­ings of euro area fi­nance min­is­ters, told re­porters on Satur­day.

“If pol­icy de­ci­sions—for ex­am­ple, for do­mes­tic is­sues— lead to de­val­u­a­tion, we should in­form and con­sult with the dif­fer­ent coun­tries.”

Ja­panese pol­icy- mak­ers are now con­tend­ing with a yen that ral­lied more than 6 per­cent in Fe­bru­ary, the big­gest monthly surge since 2008— and one that stoked spec­u­la­tion among traders that of­fi­cials could in­ter­vene in the mar­ket by sell­ing the cur­rency.

The G-20 said in the Shang­hai Com­mu­niqué that “we will con­sult closely on ex­change mar­kets,” lan­guage that wasn’t in­cluded in its Septem­ber state­ment.

De­liv­er­ing on the G-20 state­ment to ease pres­sure on cen­tral banks will re­quire political ap­petite for un­pop­u­lar do­mes­tic re­forms, while new spend­ing may be con­strained by al­ready over­stretched bud­gets, es­pe­cially across much of the ad­vanced world.

“Where is the boost to growth go­ing to come from? Fis­cal pol­icy? Re­form?” said Richard Jer­ram, the chief econ­o­mist at Bank of Sin­ga­pore Ltd. “Af­ter six or seven years of try­ing to pro­mote re­cov­ery, there is no ap­petite for fis­cal stim­u­lus, and no easy or ob­vi­ous re­forms that have been ne­glected.”

Some coun­tries are head­ing in the other di­rec­tion on the fis­cal front. UK Chan­cel­lor of the Ex­che­quer Ge­orge Os­borne warned just days ago he may make fur­ther cuts in pub­lic spend­ing in his an­nual bud­get on March 16. Ja­pan is plan­ning a 2017 sales-tax in­crease. Ger­man Fi­nance Min­is­ter Wolf­gang Schaeu­ble re­jected fis­cal stim­u­lus on Fri­day. US bud­get pol­icy has proved a con­stant bat­tle­ground be­tween Repub­li­cans and Demo­cratic Pres­i­dent Barack Obama.

Af­ter six or seven years of try­ing to pro­mote re­cov­ery, there is no ap­petite for fis­cal stim­u­lus, and no easy or ob­vi­ous re­forms that have been ne­glected.”

—Jer­ram

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