Finance ministers and central bank governors of the Group of 20 Nations gave another nod toward “cooperation” in pursuit of stronger global economic growth Friday, but their vague undertakings likely fall far short of the kind of policy coordination that some have been seeking.
Treasury Secretary Jack Lew and Federal Reserve Chair Janet Yellen joined their counterparts from other G20 nations in declaring, “We are strengthening our macroeconomic cooperation by further deepening our understanding of each other’s policy frameworks and assessing the collective implications of our national policies across a range of possible outcomes.”
“We will continue to provide clear and timely communication of our actions and be mindful of impacts on the global economy as policy settings are recalibrated,” the G20 communique continues.
That passage sounds somewhat softer than a key passage in the Feb. 23 G20 communique: “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.”
The latest communique does not specifically mention central banks or monetary policy, even though they have been active areas of controversy.
Since the February meeting in Sydney, Australia, the Fed has continued reducing its large-scale asset purchases in the face of complaints that the “tapering” of “quantitative easing” is putting disruptive pressure on emerging market economies through its effects on their interest rates and exchange rates.
There have been increasing calls for greater “coordination” among the Fed and other major central banks and with emerging market monetary authorities.
Reserve Bank of India governor Rahuram Rajan complained earlier this year that “international monetary co-operation has broken down.”
Rajan, former chief economist of the International Monetary Fund, declared after his central bank had raised interest rates, asserted that “industrial countries have to play a part in restoring that (co-operation), and they can’t at this point wash their hands off and say, we’ll do what we need to and you do the adjustment.”
At an IMF conference earlier this week, former British Chancellor of the Exchequer Alistair Darling complained that the major central banks have “lost the team spirit” since 2010 and are going their own way.
Willem Buiter, chief economist of Citigroup, accused the Fed of “irresponsible behavior” in “prematurely” tapering asset purchases without coordinating with other central banks and without taking into account the impact on emerging market economies.
For their part, Fed officials have said they take into account the impact of their policies on other countries, but that they cannot coordinate coordinate their actions to meet the needs of other countries. New York Federal Reserve Bank President William Dudley made that point in late March, saying the Fed has a “domestic mandate.”
The G20 policyamkers, meeting ahead of the Spring meetings of the IMF and World Bank, mixed optimism with wariness in commenting on the global economic situation, much as IMF Managing Director Christine Lagarde had previously done.
“We welcome the prospects for global economic growth to strengthen in 2014 but remain vigilant in the face of important global risks and vulnerabilities,” they said. “We are determined to manage these risks and take actions to further strengthen the recovery, create jobs and improve medium term growth prospects.”
The G20 finance ministers and central bankers go on to “commit to working with our leaders and across our governments to ensure that our comprehensive growth strategies to be presented at the Brisbane Summit outline ambitious, realistic and concrete measures to achieve strong, sustainable and balanced growth.”
“We will develop these measures to support growth and create jobs in the context of maintaining financial sector stability and fiscal sustainability, including by addressing tax avoidance and evasion,” they say in their communique.
“To meet our Sydney growth ambition to lift our collective GDP by more than 2% above the trajectory implied by current policies over the coming 5 years, we are committed to developing new actions that: build on previous G20 commitments; address identified gaps in our policy settings; lift and rebalance global demand and achieve exchange rate flexibility as well as increase growth potential; and create substantial positive spillovers to each other and the world economy.”
“At our September meeting, we will together review our comprehensive growth strategies, to ensure they include action across a broad front including in the areas of investment, employment and participation, trade and competition, in addition to macroeconomic policies,” the communique adds.
Once again, the G20 emphasize that structural reforms are “especially important to achieve our common objective.”