* Russia’s Siluanov: G20 agreed on ‘soft parameters’ on debt
* G20 says ‘mindful’ of side effects of monetary stimulus
* Euro zone urged to move quickly toward banking union
By Leika Kihara and Paul Eckert
April 19 (Reuters) – Finance leaders of the G20 economies on
Friday edged away from a long-running drive toward government
austerity in rich nations, rejecting the idea of setting hard
targets for reducing national debt in a sign of worries over a
sluggish global recovery.
The G20 club of advanced and emerging economies also said it
would be watching for negative effects from massive monetary
stimulus, such as Japan’s – a nod to concerns of developing
nations that those policies risk flooding their economies with
hot capital and driving up their currencies.
Russian Finance Minister Anton Siluanov said at a news
conference that officials from the Group of 20 nations believed
overall debt reduction was more important than specific figures.
“We agreed that these would be soft parameters, these would
be some kind of strategic objectives and goals which might be
amended or adjusted, depending on the specific situations in the
national economies,” he said.
Russia – this year’s G20 chair – had hoped to secure an
agreement on setting fixed targets for reducing debt by the time
G20 leaders meet in St. Petersburg in September.
But the United States and Japan have firmly opposed the idea
of committing to fixed debt-to-GDP targets, with Washington
trying to keep the focus of the G20 on growth.
“Quite frankly, the language could have been stronger but
it’s sufficient to move this forward,” said Canadian Finance
Minister Jim Flaherty.
WATCHING JAPAN
In a communique after a two-day meeting, the G20 said it
would be “mindful” of possible side effects from extended
periods of monetary stimulus, a phrase added the insistence of
South Korea to take into account the concerns of emerging
markets.
“Monetary policy should be directed toward domestic price
stability and continuing to support economic recovery,” the
statement said.
The economic policies of Japanese Prime Minister Shinzo Abe
have weakened the yen, but only as a by-product of stimulus
geared at pulling the country out of deflation, the country’s
finance minister said.
“To say that a cheap yen is our goal will grossly miss the
point,” Taro Aso told the Center for Strategic and International
Studies in Washington.
“The big D – deflation – is too difficult and too persistent
to get rid of. At the end of the day, a shrinking Japan can only
do harm to the world.”
The BOJ is not alone in flooding its economy with cheap
funds to try to boost borrowing and spending. The U.S. Federal
Reserve, the Bank of England and, to some extent, the European
Central Bank have as well.
“Japan’s growth is good for India. Stagnation in Japan is
not good for India. We want Japan to grow,” said Indian Finance
Minister P. Chidambaram, who spoke at the Peterson Institute in
Washington on Friday.
Brazilian Finance Minister Guido Mantega said that because
of Japan’s long history of deflation, its stimulus efforts were
“understandable,” but he added that the G20 must remain vigilant
on exchange rates.
The G20 leaders urged the euro zone to quickly move toward a
banking union in order to help revive the region’s economy.
However, Germany repeated its earlier position that European
Union laws needed to be changed before one of the elements of
the banking union, a scheme for winding down failing banks, can
be introduced – which is likely to delay the process.
The struggles of the euro zone dominated G20 discussions,
delegates said, as harsh austerity measures have failed to lift
the region out of its economic slumber. The United States has
been pressing Europe to ease up on its budget cutting.
A senior U.S. Treasury official, speaking to reporters on
condition of anonymity, said that Cyprus’s bailout showed Europe
needs to do more to move towards banking union.
Discussions of the euro zone will likely remain prominent on
Saturday as global finance officials gather again for a meeting
of the International Monetary Fund’s governing committee.
“Stronger demand in Europe is critical to global
growth. Weak domestic demand has undercut euro area growth for
six consecutive quarters and output continues to contract,” U.S.
Treasury Secretary Jack Lew said in a statement prepared for
delivery to the IMF committee.
SOFT DEBT TARGETS
The drive toward government austerity has been undercut by
weakness in economies that took severe measures to cut deficits,
including Britain, which is headed into its third recession in
the last five years. The U.S. economy also shows some signs of
strain that economists pin on belt-tightening in Washington.
Earlier this week, the IMF reduced its forecast for global
growth and reiterated its call for some European countries to
throttle back their austerity drives.
Fitch cut its credit rating on Britain on Friday to
double-A-plus, citing expectations that general government debt
will rise to 101 percent of GDP by 2015-2016 due to weak growth.
In an interview with BBC television, IMF chief Christine
Lagarde said now might be time for Britain to consider relaxing
its focus on austerity given the recent weakness in its economy.
Russia’s Siluanov also said a greater amount of coordination
was needed with the IMF on global liquidity, with
recommendations expected by next July.
G20 ministers called on the Financial Stability Board to
oversee work on reforms for short-term interest rate benchmarks
such as Libor in the aftermath of a global rate-rigging scandal.
FSB was asked to report back in July on its progress.
