Monday, February 24, 2014

Keeping an eye on the G20

Despite having been generally disappointed with the outcome of most G20 deliberations since the GFC,  I still check in occasionally.  Why put myself through the angst you might well ask? Because much of the repair to the global economy that still needs to happen is about the necessary rebalancing of global growth and the building of a stronger and more resilient global monetary system.  That needs a co-ordinated approach.  That being the case, a multi-country grouping of the worlds 20 largest economies working alongside the key multi-lateral agencies such as the International Monetary Fund still seems the most logical place to see progress.  

The Communique from the recent Meeting of Finance Ministers in Sydney was in much the same vein as all the others.  It's hard to find a single word to disagree with. A commitment to "develop ambitious but realistic policies to lift collective GDP by 2% above the trajectory implied by current policies over the coming five years" is admirable.  But apart from acknowledging the well-understood structural reform that needs to be progressed to achieve increased investment, a lift to employment and participation,  enhanced trade and greater competition, there is a paucity of detail.  To be fair, there is still hope that the forthcoming Brisbane Action Plan will contain that detail.  Fingers crossed.

I've commented in the past that the challenge with commitments made on the global stage at G20 forums is for the Finance Ministers and Leaders to turn those commitments into policy action at home.  That's where the political reality of implementing what will most likely be unpopular and costly structural reform puts a brake on policy action.

The discussion at this forum that was going to be of most immediate interest was monetary policy and in particular US Federal Reserve wind down of its asset purchase program and the subsequent volatility in emerging markets.  The Communique endorsed the gradual normalisation of monetary policy with the timing conditional on economic growth and price stability. The eventual reduced reliance on easy monetary policy would in time be beneficial to financial stability.  No disagreement from me.

The message to the emerging economies was the normalisation of monetary policy might lead to excessive volatility in asset prices and exchange rates but that the primary response to that is to further strengthen and refine domestic (i.e. their own) macroeconomic, structural and financial policy frameworks.  I'm good with that message.