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A bumpy G20 agenda: from austerity to growth

27 Feb A bumpy G20 agenda: from austerity to growth

For the past few years, G20 meetings have focused on austerity measures, given the backdrop of the financial and economic crises. Over the weekend (22-23 February) in Sydney, Australia, G20 finance ministers and central bank governors agreed to add US$2 trillion (S$2.5 trillion) to the global economy over the next five years – a 2 percentage point increase in world GDP. Concrete measures, however, were less apparent and Asian stock markets were not impressed when they opened on Monday, with major regional indices losing ground except Singapore’s.

Nevertheless, it is a good sign that the world’s 20 largest economies agree on the direction that the global economy should take. The resulting communiqué from the meeting said that the G20 countries would take “concrete actions” such as “increase investment, lift employment and participation, enhance trade and promote competition, in addition to macroeconomic policies.”

Still, tensions brewed between developed and developing economies, with one of the loudest voices coming from India. Mr Raghuram Rajan, the governor of the country’s Reserve Bank, accused Western countries of formulating monetary policy that had been distorting emerging economies, and called on them to restore international monetary co-operation. Much of his argument seemed directed towards the US Federal Reserve’s tapering of its quantitative easing on monetary policy at the beginning of this year, which has had a destabilising effect on developing economies like India.

The response from the finance ministers of the UK, US and Germany was that all countries needed “get their houses in order”. Not that India does not recognise this, as Mr Rajan himself had already pointed out for India. Nor was he arguing that national central banks in developed countries should act altruistically beyond their sovereign interests.

Rather, Mr Rajan’s point was that some of the Fed’s decisions do indeed hurt emerging economies. Moreover, what emerging economies can do to “get their houses in order”, such as controlling foreign capital and hoarding foreign-exchange reserves, will affect developed countries too – and by extension, the entire global economy.

The statement from this latest G20 meeting may lack grit and detail, at a time that the grouping has been said to be losing relevance, especially for emerging economies. But as the G20 makes a transition towards a post-crisis agenda, the US$2 trillion target is a welcome sign of the common resolve among the world’s largest economies in forging some form of cooperation.


G20 aims to add $2tn to global economy [Financial Times, 23 Feb 2014]

Neither accurate nor useful [The Economist, 21 Feb 2014]