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Analysis

G20 Finance Conclusions on Global Imbalances, 1999-2009

Drawn from G20 finance communiqués
Anton Malkin, G20 Research Group, August 2009

Summary of Conclusions on Global Imbalances in G20 Finance Communiqués

Notes: *emergency meetings

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Definition

Global imbalances are defined here by excessive saving on the part of one systemically significant group of countries or a single country and a corresponding excess in spending by another group of systemically significant countries or single country, causing concern about the financial situation affecting either individual countries or the global financial system as a whole. The term can also refer to excessive fiscal vulnerabilities and current account surpluses and deficit that threaten global financial stability.

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Criteria

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Summary of Conclusions on Global Imbalances in G20 Finance Communiqués

Notes: *emergency meetings

Conclusions on Global Imbalances in G20 FInance Communiqués

Morelia, Mexico, October 26-27, 2003
Communiqué

We discussed ways to promote economic growth that is more balanced among major regions. We emphasized the need to reduce fiscal and external vulnerabilities and imbalances in both industrial and emerging market economies. We agreed that the adjustment of significant imbalances in systemically important regions or countries requires robust implementation of appropriate policies. Further efforts, including the acceleration of structural reforms to foster potential growth and improve macroeconomic stability, are needed. We confirmed that those countries with efficient and solid markets and institutions are the ones that are best prepared to make the most out of their participation in the global economy. We also noted the importance of a policy framework to provide medium-term sustainability, flexibility and fairness. We are determined to work together to deepen our commitment to these goals.

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Berlin, Germany, November 20-21, 2004
Communiqué

2. We welcomed the favourable macroeconomic environment in the world economy with high growth at low inflation rates. We expect that the macroeconomic environment will remain favourable in the next year. Many countries are implementing structural reforms to foster sustainable growth and financial stability. However, downside risks have increased due to oil price volatility, persisting external imbalances and geo-political concerns. Co-operation between oil producers and consumers to ensure adequate supply, investment to expand oil production capacity, improvements in oil market transparency, greater energy efficiency and wider use of alternative sources of energy will contribute to improving the resilience and sustainability of the international economy and to more moderate oil prices in the medium term. We also discussed the impact of current macro-economic conditions, in particular oil prices, on many of the poorest countries and the adverse effects on their development prospects. We underscored the importance of medium-term fiscal consolidation in the United States, continued structural reforms to boost growth in Europe and Japan, and, in emerging Asia, steps towards greater exchange rate flexibility, supported by continued financial sector reform, as appropriate.

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Xianghe, China, October 15-16, 2005
Communiqué

2. We welcomed the ongoing expansion of the world economy, while recognizing low growth and increasing poverty in some developing countries. We also emphasized that the risks — long lasting high and volatile oil price, widening global imbalances and rising protectionist sentiments — are to the downside and could exacerbate uncertainties and aggravate global economic and financial vulnerabilities. We agreed addressing them must be done in a way that sustains strong global economic growth and takes account of shared responsibilities. Bearing in mind our shared responsibilities, we are determined to implement the necessary fiscal, monetary and exchange rate policies, and accelerate structural adjustments to resolve these imbalances and overcome these risks.

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Xianghe, China, October 15-16, 2005
G20 Reform Agenda 2005

2. The United States has seen important developments in tax, trade, corporate governance, education, and energy policies to enhance growth. Future tax, health, and pension policies could further support growth. Proposed reforms in pension funding include improvements in calculating and disclosing pension liabilities and restricting benefit increases. Healthcare reforms have also been proposed. Canada is focused on jobs, economic growth, and prosperity. It is committed to maintaining balanced budgets and sound monetary policy, building a highly-skilled, adaptable and inclusive workforce, encouraging greater private sector involvement in research and development, making the regulatory system more transparent, accountable and adaptable and maintaining a fair, efficient and competitive tax system. Argentina is emphasizing the need to correct imbalances as evidenced by capital flow instability and foreign exchange crises, and distortions of free international commerce through taxes and subsidies. Brazil will continue to strengthen its sound macroeconomic framework, which has already resulted in higher growth, sustained price stability and significant job creation, while improving the quality of public expenditure. For Mexico high priority is placed on achieving the equilibrium between public revenue and expenditure. Mexico is also determined to invest in physical and human capital, reduce poverty and inequality, including through public expenditure that emphasizes social development and infrastructure.

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Melbourne, Australia, November 18-19, 2006, Communiqué

Maintaining strong world growth and containing inflation will require ongoing adjustments to monetary and fiscal policies while ensuring appropriate exchange rate flexibility and structural reform. We need to take advantage of the present strength in the global economy to get policy settings right. Faced with potential inflationary pressures, the normalisation of monetary policy underway in many G20 countries will need to continue. Fiscal policy needs to ensure that public-sector balance sheets are not vulnerable to slower revenue growth and higher expenditure when growth rates resume more normal trajectories, and that there is sufficient room for policy to respond if growth slows more sharply than currently anticipated. We are determined to implement these policies, which are also required to enable global imbalances between countries to unwind in an orderly manner.

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Kleinmond, South Africa, November 17-18, 2007
Communiqué

2. G20 members welcomed the continued strong growth of the global economy in the first half of 2007 but noted that downside risks to the near-term outlook have increased as a consequence of recent financial market disturbances. We were pleased to note the resilience of emerging market and other developing countries during the recent turbulence. While the likely slowdown in global economic growth is expected to be modest, its extent and duration remains difficult to predict. While the slower pace of growth is expected to moderate pressures on capacity and resources, rising energy and food prices will remain an important source of price pressures. Monetary authorities in G20 countries will need to assess carefully the inflation outlook in light of both tight conditions in commodity markets and the downside risks to growth. We also agreed that an orderly unwinding of global imbalances, while sustaining global growth, is a shared responsibility involving: steps to boost national saving in the United States, including continued fiscal consolidation; further progress on growth-enhancing reforms in Europe; further structural reforms and fiscal consolidation in Japan; reforms to boost domestic demand in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries; and increased spending consistent with absorptive capacity and macroeconomic stability in oil-producing countries. The need to address rising pressures on health and social security spending and infrastructure was also stressed.

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Sao Paulo, Brazil, November 9, 2008
Communiqué

3. We noted that the current financial crisis is largely a result of excessive risk taking and faulty risk management practices in financial markets, inconsistent macroeconomic policies, which gave rise to domestic and external imbalances, as well as deficiencies in financial regulation and supervision in some advanced countries.

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