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A Meeting of Minimum Success:
The April 2013 Meeting of G20 Finance Ministers and Central Bank Governors

John Kirton, co-director, G20 Research Group, April 22, 2013

G20 finance ministers and central bank governors held their second meeting under the Russian presidency on April 17-18, 2013, as part of the semi-annual meetings of the International Monetary Fund (IMF) and World Bank. Chaired by Russian finance minister Anton Siluanov, the meeting featured relative newcomers from its three largest members: Jacob Lew, now confirmed as Treasury Secretary of the United States; new Chinese finance minister Lou Jiwei; and Japan's new central bank governor Haruhiko Kuroda, attending his first such meeting; and Japan's finance minister Taro Aso, who as deputy prime minister also met on the sidelines with U.S. vice-president Joe Biden.

The meeting confronted several pressing challenges. The first was the addressing immediate aftermath of the latest installment of the European financial crisis, centred on an initially miscalculated financial rescue package for Cyprus in March that had created the precedent that bank depositors would take a haircut along with shareholders and creditors. The second was a slowing of the global economy, as a new version of the IMF's World Economic Outlook downgraded projected growth in the world economy, including in both the G7 economies and in the long booming BRICS powerhouses of China and India as well (see Appendix A). The third challenge came on fiscal policy, as recessionary Europe still emphasized austerity while the United States and Japan engaged in substantial stimulus sparked by their domestic political disagreement and failure to set an authoritative strategy for fiscal consolidation in the medium term. Additional drama was caused by Japan's recent major new monetary policy stimulus, which, when added to that of the United States and United Kingdom, sparked fears that the result could be negative spillovers onto emerging economies and competitive currency devaluation and asset bubbles, financial instability and inflation over the long term. In addition, ministers and governors had the important task of advancing the ambitious aims for their leaders at the September summit in St. Petersburg in less than five months, notably on the Russian presidency priorities of financing investment and public debt management, and the built-in agenda of IMF reform and much else.

In the end the meeting met its minimum objectives of forging consensus on the immediate issue of monetary policy, endorsing others' moves and setting specific deliverables for many issues to ripe for resolution. It also added its broader weight to the current G8 summit priority of reducing tax evasion and promoting women. Yet it did little on its key issues to secure adjustments from the most powerful countries in the group and in the world, as the U.S. and Japan rejected the proposed hard targets for government debt as a percentage of gross domestic product (GDP), China remained reluctant to free its exchange rate, and Europe along with the U.S. resisted complying with the overdue G20 commitment to reform voting shares at the IMF. Moreover, the meeting left largely unaddressed many important core G20 issues, notably trade liberalization, development and the phase-out of fossil fuel subsidies.

In all, the meeting succeeded most on issues where its participants had the authority and expertise, notably monetary policy, financial regulation and tax evasion, but failed on those such as fiscal policy were the G20's history showed it would require the leaders themselves at their summit to resolve. This underscored the unprecedentedly long time between the last summit at Los Cabos in June 2012 and the next in St. Petersburg in September 2013, and the need for G20 leaders to meet more often for longer periods if the G20 was to move from avoiding disaster to keeping its major commitments on schedule and realizing the many ambitious goals it had set for itself and the world.

Monetary Policy

Monetary policy marked the meeting's biggest immediate success. All members explicitly endorsed Japan's position by stating in the concluding communique that "Japan's recent policy actions are intended to stop deflation and support domestic demand." They repeated their pledge that "we will refrain from competitive devaluation and will not target our exchange rates for competitive purposes," while adding "we will be mindful of unintended negative side effects stemming from extended periods of monetary easing." No dissent about Japan's move were heard from previous skeptics such as Korea or from Brazil's finance minister Guido Mantega, who had long warned about the spectre of "currency wars."

Fiscal Policy

Fiscal policy saw failure on the G20's central initiative and much less consensus on other key components. The hard-won G20 summit agreement at Toronto in June 2010 to have advanced country members limit their fiscal deficits and debt by 2013 was due to expire without being met, leading the Russian chair to propose that it be replaced by a hard cap of limiting countries' debt as a percentage of GDP. The initiative was supported by Germany, the UK and Canada. Strong resistance came from the U.S. and Japan, both of which had massive, uncontrolled deficits and debt. In the end, the meeting agreed only that "advanced economies will develop medium-term fiscal strategies by the time of the St. Petersburg Summit in line with the commitments made by our Leaders in Los Cabos. We will present and review our strategies at our next meeting."

On the broader task of raising growth and jobs and strengthening the Framework for Strong, Sustainable and Balanced Growth, some small progress was made, notably an agreement that more steps were needed now. While Japan and Korea were complemented for their stimulus, participants declared that "much more is needed" and detailed specific steps needed to be taken in Europe, the United States and in large surplus countries. While the latter group, led by Germany and China, were asked to "consider taking further steps to boost domestic sources of growth" this was immediately followed by an endorsement of Germany's preferred policy of "[continuing] to implement ambitious structural reforms." Despite U.S. criticism of China's exchange rate policy in the lead-up, participants agreed only to "reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments."

Financial Regulation

On the issue of domestic financial regulation, given new urgency by the recent collapse of Cyprus's banks, participants usefully agreed on a process and timetable across a wide range of components. These included a July report on the comparability of risk-weighted assets for banks, a report from the Financial Stability Board to the St. Petersburg Summit on ending the "too big to fail" problem, a report with practical recommendation on cross-border derivatives by the G20 July finance meeting for resolution at the summit, recommendations on shadow banking for the summit, finalizing a single set of accounting standards by the end of 2013 a report on reforming interest rate benchmarks by July and a report on credit ratings agencies by the summit. These efforts offset the great failure to meet the deadline to implement the Basel III banking regulations, although all agreed the missing half of the members would do so by the end of 2013.

Of particular note was the advance the G0 achieved in support of the G8 summit's priority theme of tax avoidance and evasion. The broader, more diverse group of G20 members agreed in Washington on the need for automatic rather than "on request" exchange of tax information between jurisdictions. The communique declared: "We welcome progress made towards automatic exchange of information which is expected to be the standard and urge all jurisdictions to move towards exchanging information automatically with their treaty partners, as appropriate."

IMF Reform

On the issue of reforming the IMF voting shares, an issue of critical concern for emerging economy members, nothing of substance was done. Participants agreed that competing the agreed reforms was "indispensable and "urgently needed," but only looked forward that this would be done by the summit. They affirmed the principle that revised quota shares should "better reflect the relative weights of IMF members in the world economy" and agreed with the IMF to link the process of reaching a final agreement on a new quota formula with the 15th general review of quotas.

Other Issues

On other issues, participants advanced the Russian priorities of financing for investment and public debt management, largely by assigning work and specifying due dates for its delivery. They took up the cause of women, in their concluding communiqué a passage on financial inclusion, thereby continuing the new attention given to women at the G20's Los Cabos Summit and by the G8 in 2013.

Yet much was missing. On trade there was only a perfunctory pledge to avoid protectionism and nothing on how to liberalize trade or investment, at the World Trade Organization or anywhere else. Similarly absent was attention to climate change and fossil fuel subsidy phase-outs — both subjects of critical importance for the fiscal sustainability the participants did focus on. Any attention to rising concerns in many members about increasing income and economic inequality would similarly have to wait for another time.

Appendix A: IMF World Economic Outlook Growth Forecasts for 2013

Actor April Change from January Forecast
World 3.3 -0.2
United States 1.9 -0.2
Euro area -0.3 0
Canada 1.5 -0.3
China 8.0 -0.1
India 5.7 -0.2

Note: all figures are percentages.
Source: IMF World Economic Outlook, January 2013.

Appendix B: G20 Finance Ministers and Central Bank Governors

Member Finance Minister Central Bank Governor
Argentina Hernán Lorenzino Mercedes Marcó Del Pont
Australia Wayne Swan Glenn Stevens
Brazil Guido Mantega Alexandre Tombini
Canada Jim Flaherty Mark Carney
China Lou Jiwei Zhou Xiaochuan
European Union Olli Rehn Mario Draghi
France Pierre Moscovici Christian Noyer
Germany Wolfgang Schäuble Jens Weidmann
India P. Chidambaram Duvvuri Subbarao
Indonesia Hatta Rajasa (acting) Darmin Nasution
Italy Vittorio Grilli Ignazio Visco
Japan Taro Aso Haruhiko Kuroda
Korea Hyun Oh-seok Kim Choong-soo
Mexico Luis Videgaray Agustin Carsten
Russia Anton Siluanov Elvira Nabiullina
Saudi Arabia Ibrahim Al-Assaf Fahd Bin Abdullah Al-Mubarak
South Africa Pravin Gordhan Gill Marcus
Turkey Mehmet Simsek Erdem Basci
United Kingdom George Osborne Mervyn King
United States Jacob Lew Ben Bernanke
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