G20 pledges ambition tempered with realism

G20 central bankers and finance ministers may have found common ground in Sydney this weekend by signing off on a targeted increase in global growth, but conceded that there remains no clear roadmap to achieving such an increase. Finance ministers and central bank governors from the world's 20 leading economies set the growth goal -- representing at least two percentage points over the next five years or 2 trillion U.S. dollars in economic activity -- following two days of closed-door negotiations. With U.S. Federal Reserve Bank Governor Janet Yellen in attendance, and recent comments from emerging market policymakers about the negative impact of tapering on their economies, the mood was expected to be less than collegial. However, Co-Host and Australian Federal Treasurer Joe Hockey, enthusing on the sidelines over a newfound G20 unity, managed to drive focus away from the quagmire of U.S. tapering and IMF reform to a common goal that all members can accept. The communique, released Sunday, said that ambition would be tempered with economic realism. "We will develop ambitious but realistic policies with the aim to lift our collective GDP by more than 2 percent above the trajectory implied by current policies over the coming five years, " the document says. "This is over 2 trillion U.S. dollars more in real terms and will lead to significant additional jobs. To achieve this we will take concrete actions across the G20, including to increase investment, lift employment and participation, enhance trade and promote competition, in addition to macroeconomic policies." Hockey's emphasis on infrastructural growth and job creation struck a chord with emerging markets and wealthy nations alike, citing G20 participant China as an example of a country creating jobs through structural changes. Speaking to reporters on the sidelines of the G20 discussions in Sydney on Sunday, Hockey insisted that structural reform is necessary for both job creation and job security. "I don't think I'm giving away any confidences by saying that the finance minister of China pointed out they had undertaken some structural reform last year in China where 13 million jobs were created," He said. Westpac Senior International Economist Huw McKay told Xinhua the official G20 communique made tacit acknowledgement of the wide concerns about the impact of the U.S. Federal Reserve's tapering program. The communique reaffirmed that central banks should "maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated." Central banks were also urged to be "mindful of impacts on the global economy." McKay said the text of the communique indicates that "the standard U.S. line that what is good for the core of the world economy is good for all seems to have won out." "There was however nothing that might count as inflammatory language in the communique, with direct references to exchange rates in the context of "flexibility" -- a comment on regime choice -- rather than levels. "Excess volatility was alluded to, but the prescription was not 'coordination', as floated by some in the lead-up, but for individual nations to get their domestic houses in order," He said. The frustrations felt by emerging markets were addressed briefly in a clause that suggested open communication between central banks would suppress any turmoil emanating from a reduction of U.S. federal stimulus. According to the 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 gulf between the hyperbole of "good intentions" and the reality of challenges facing the finance ministers and central bank governors of the G20 nations -- together represent 85 percent of a stuttering global economy -- appears to have been smoothed over in a communique that shares bold ambitions and addresses the concerns of "easy money" through over-generous monetary policy. "Reduced reliance on easy monetary policy would be beneficial in the medium term for financial stability." Speaking to reporters earlier in the week, Indonesian Finance Minister Muhamad Chatib Basri echoed the sentiments of many emerging economies by seeking a resolution to the influences of the U.S. tapering program. "It is very important to continue to communicate to discuss about the roadmap so that we in the emerging markets can prepare," Basri said, noting that many emerging markets nations including India, South Africa, Brazil and others also raised this same issue of the need for coordination.