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G20 bid to check taper impact

Sydney, Feb. 23 (Agencies): The G20, a group of 20 leading economies, including the US and India, has acknowledged that the US Federal Reserve must consider the impact of its policy tapering, which has led to bouts of capital flight from some of the more vulnerable markets.

“All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being mindful of impacts on the global economy,” read the communique released at the end of the two-day meeting of the Group of 20 (G20) finance ministers and central bankers in Sydney.

The US Federal Reserve has reduced its monthly bond purchases by $20 billion to $65 billion on signs of an improving US economy.

There was never much expectation that the Fed would consider slowing the pace of tapering, but its emerging peers had at least hoped for more co-operation on policy.

Australian treasurer Joe Hockey, who hosted the meeting, said there had been honest discussions among members on the impact of tapering and that the newly installed Fed chair Janet Yellen was “hugely impressive” when dealing with them.

While shifting the focus to reforms that would lift and sustain global growth in years to come, the group acknowledged that monetary policy would need to “remain accommodative in many advanced economies and should normalise in due course”.

Satisfied with the outcome of the G20 meeting, finance minister P. Chidambaram said India’s concerns with regard to the withdrawal of US stimulus had been taken on board by the group of rich and developing nations.

“When countries withdraw from quantitative easing they should keep in mind the spillovers on the developing countries,” he said.

Emerging countries followed the advice of the International Monetary Fund (IMF) when the major economies went through a period of downturn after the 2008 global financial crisis, Chidambaram said.

“So, when they (developed world) sought our co-operation during the economic downturn it is only fair that they cooperate with developing countries during the economic recovery,” he said, referring to the remarks of German finance minister Wolfgang Schaeuble that India should not attribute its problems to the monetary polices of developed nations.

Reserve Bank governor Raghuram Rajan said the central banks of developed nations must keep in mind emerging nations while framing their monetary policies.

“I don’t think we can proceed forward saying everybody is in their own boat and they sink or swim alone,” he said in reference to the need for advanced nations, such as the US, to take heed of countries vulnerable to the stimulus withdrawal.

In his interview to The Australian Financial Review, Rajan said while India was well placed to weather the upheaval, advanced nations must recognise the impact of their monetary policy decisions on other economies and “be prepared to act if things get out of kilter”.

IMF stalemate

The G20 also stated that it “deeply regrets” that the progress on giving emerging nations more say in the International Monetary Fund had stalled.

Major emerging powers, including India, China, Brazil and Russia, have long lobbied for increased voting power in the IMF to reflect their growing share of the world economy, but the changes agreed in 2010 have been blocked by the US Congress.

The G20 urged the United States to ratify the reforms before the next meeting of policymakers in April.

Ambitious target

At the end of the two-day meeting, the world’s top economies have embraced a goal of generating more than $2 trillion in additional output over five years while creating tens of million of new jobs, signalling optimism that the worst of crisis-era austerity was behind them.

“We will develop ambitious but realistic policies with the aim to lift our collective GDP by more than 2 per cent above the trajectory implied by current policies over the coming five years,” the G20 statement said.

The growth plan borrows wholesale from an IMF paper prepared for the Sydney meeting, which estimated that structural reforms would raise the world economic output by about 0.5 per cent per year over the next five years, boosting global output by $2.25 trillion.

The International Monetary Fund has forecast a global growth of 3.75 per cent for this year and 4 per cent in 2015.

The group is also progressing with plans to“make sure multinational companies pay their fair share”, said US treasury secretary Jack Lew.

 
 
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