G-20 focuses on strategies to sustain the recovery

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G-20 focuses on strategies to sustain the recovery

Global finance chiefs sought to reinforce the global economic recovery by promising “carefully calibrated” policies that won’t spook markets.

The Group of 20 nations heeded calls from emerging-market countries to guard against shockwaves when U.S. growth is secure enough for the Federal Reserve to slow its bond buying, according to a statement issued Saturday in Moscow. They also repeated that nations should move quickly toward market-based exchange rates and avoid competitive devaluation.

“Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated,” according to the statement issued after finance ministers and central bankers concluded two days of talks. “We reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.”

The G-20 also backed the Organization for Economic Cooperation and Development’s plan for revamping global tax codes. The endorsement gives a boost to the Paris-based OECD’s efforts to prevent the largest companies from using complicated ownership structures and transfer pricing to avoid paying taxes where they do most of their business.

“The tax agreement stands out, but the devil is in the details,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman in New York. “Exactly how it will be implemented is not clear.”

Speculation about developed economies scaling back their unprecedented monetary easing has roiled emerging-market currencies and bonds since G-20 finance chiefs met in April. From South Korea to South Africa, anticipation that the Fed would soon pare back its quantitative easing efforts drew calls for coordination so as not to squelch global demand.

“We really focused on growth and employment and what is the policy mix that will help improve growth encourage and create jobs,” said International Monetary Fund Managing Director Christine Lagarde. “Central banks share that concern.”

The improving U.S. economy means a shift in Fed policy is coming and it will need to take place “in the proper manner,” said Indonesian Finance Minister Chatib Basri. “The question is about the pace. Of course, we have to wait for what will happen in the next couple of months.”

Global yields surged and equities fell after Fed Chairman Ben S. Bernanke signaled on June 19 the central bank may start tapering its monthly stimulus program this year. U.S. 10-year yields, which climbed 36 basis points in June, have cut into increases over the past two weeks as Bernanke eased those concerns.

According to the final statement, G-20 nations will offer “credible, ambitious” strategies when leaders meet in St. Petersburg in September.

Germany had sought tougher language that would require medium-term budget targets and push the U.S. and Japan to follow through on previous commitments, said an official from a G-20 country.

Germany, in turn, came under fire from the United States and South Korea, who pressed Europe to prioritize growth over debt-cutting measures.

Bloomberg

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