The first G-20 meeting under Australian leadership managed to agree more than skeptics thought possible – the idea that developed economies will calibrate their monetary policies and keep in mind the impact on others, mainly emerging markets.
And for the first time, the members of G-20 have agreed to a growth target, to take steps to boost their collective GDP by more than 2% over what their current growth is projected to be over the coming five years.
The meeting took place in the backdrop of still-weak global growth, despite recent improvements in some economies. But a key concern for many was how this fragile growth outlook would be hampered by volatility in emerging markets caused by the U.S. Federal Reserve tapering.
For now, some of these concerns are allayed as members have agreed to co-operate and take into account the spillover effect of their monetary policy action on other economies, and agreed on taking steps to fix structural impediments to boost growth.
“We will consistently communicate our actions to each other and to the public, and continue to cooperate on managing spillovers to other countries, and to ensure the continued effectiveness of global safety nets,” the G-20 communique read.
Speaking to reporters, Australia’s Treasurer Joe Hockey pointed to the “nuanced change in words” in the communique which were meant to convey that developed countries recognize the impact of their action on emerging markets and have pledged to take that into account while formulating policy.
Hockey said there were “honest discussions” about the impact of the Fed’s tapering, and also commended Fed chief Janet Yellen, referring to her as “highly impressive” while dealing with this issue.
“The fact was there was proper recognition that the movement of monetary policy in major developed countries, whether tightening or easing, is going to have an impact on emerging economies,” Hockey said, adding, “there was proper recognition that will be taken into account in the foreseeable future.”
In her statement, IMF chief Christine Lagarde said it is important that the G20 committed “to consistently communicate monetary policy actions with the aim of aiding efforts to manage spillovers. Global dialogue and improved communication are essential to help safeguard financial stability. They also committed to take the necessary steps to manage deflationary and inflationary pressures.”
Later speaking to reporters, Lagarde said the debate wasn’t a “difficult” one as “portrayed before the meeting.”
Participants kept an open mind and recognized what is required, what the consequences are and the interdependence between developed and emerging markets, Lagarde said.
Importantly, she said there was “solidity on all sides to face what will inevitably be volatility in future” because monetary policy cannot be changed without a degree of volatility.
U.S. Treasury Secretary Jack Lew didn’t specifically talk about emerging market at his press conference but said there was a number of discussions that included all economies.
He said there was a need for all key economies, including Japan and China, to grow together as it is “hard to make up the shortfall” in growth in any of these economies.
The central bank governor of a key emerging market, India, however, didn’t seem impressed with the level of commitment achieved at the meeting.
In an interview with CNBC published on their website, Reserve Bank of India Governor Raghuram Rajan said battered emerging markets have received an unintended message that they are out on their own.
It’s unclear what Rajan’s expectation from the meeting were. In another interview with the Australian Financial Review published early Saturday, Rajan said there was a fair understanding of how emerging markets could be affected by actions of developed economies but the question was how to move forward on this.
He said an “expression of sensitivity would be quite important” as opposed to “sink or swim” and would be a recognition of “we’re in it together.”
India’s Finance Minister, on the other hand, seemed satisfied with the outcome. In an interview with Press Trust of India, published by the Hindustan Times, P. Chidambaram was quoted as saying, “The communique has been drawn by the deputies sitting together and our concerns have been fully reflected in the communique.”