G20 agrees on careful policy shift from monetary easing

The Group of 20 (G20) nations vowed to put the priority on growth and employment, pushing considerations of austerity to the back burner.

In a joint communiqué, finance ministers and central bankers of the G20 nations agreed that they are ”mindful” about unintended side-effects of advanced economies’ stimulus exit and that those strategies should be approached “carefully.”

The statement is interpreted as a positive result for emerging economies including South Korea, which have been concerned about recessions and capital outflows caused by reduced quantitative easing.

○ ‘carefully calibrated’ exit strategy

At the meeting, the G20 countries agreed that a global economic recovery remains weak and that growth and employment are urgent tasks.

“The global economy remains too weak and its recovery still fragile and that unemployment remains excessively high in many countries,” the statement said. “Strengthening growth and creating jobs remain our priority.”

The emphasis on the importance of an economic recovery will likely put a brake on the full-fledged implementation of an exit strategy that the U.S. has been considering, as a drastic reduction of quantitative easing could negatively affect the overall global economy and financial markets.

“Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated” the joint statement said. “Sound macroeconomic policies and strong prudential frameworks will help address potential volatility.”

An official at Seoul’s Ministry of Strategy and Finance said, “The statement is meaningful in that it curbs drastic changes in advanced economies’ basic monetary policies and has justified emerging economies’ policy means to cope with them.”

The G20 nations also agreed on strengthening regional financial safety nets to provision for financial market volatility, coordination of macroeconomic policies for promoting employment and preventing multinational corporations’ offshore tax avoidance.

The agreements at the meeting will be fine-tuned at the G20 summit to be held in St. Petersburg, Russia in September for official adoption as policy tasks of the member nations.

○ S. Korean finance minister’s role

The South Korean government is in an elevated mood, saying that many of its proposals were reflected into the result. Before leaving for Moscow, Deputy Prime Minister and Finance Minister Hyun Oh-seok had expressed concern that hasty rollback of stimulus measures by advanced countries could have a negative ripple effect on the global economy. He then noted that he would voice such concerns at the G20 finance ministers’ meeting together with other emerging economies such as Brazil and India. The concerns made their way onto the joint communiqué, in which the G20 nations agreed to carefully calibrate changes in monetary policy settings.

In addition, the agreement to “refrain from competitive devaluation” is also viewed as a positive result for South Korea, which is affected by “Abenomics,” or the economic policy by Japanese Prime Minister Shinzo Abe.

Hyun was on a busy schedule before and during the G20 finance ministers’ meeting, holding bilateral talks with his counterparts from seven countries including the U.S., Germany and China. He had an opportunity to recover from criticisms at home for his “lack of leadership.” He came under criticism after the G20 meeting in April tolerated a weaker Japanese yen.

“The results (of the latest G20 meeting) are better than last time,” said Sung Tae-yoon, a professor of economics at Yonsei University. “However, there is a limit in seeing the latest communiqué as Seoul’s achievement because the U.S. implements its monetary policy depending on its own economic situation, rather than on the results of the G20 meetings.”