The OECD on Friday (21/02/2014) said the winding down of US monetary stimulus should be a “wake-up call” for emerging economies to accelerate reforms, but Indonesia and South Africa stepped up criticism of the Federal Reserve heading into G20 talks.
Countries including Indonesia, South Africa, Argentina, Turkey and India have suffered sharp capital outflows and losses to their currencies as a by-product of the Fed’s “taper” – the easing back of its mammoth stimulus programme.
The Organisation for Economic Cooperation and Development, which largely comprises richer countries, said the move was inevitable as the US economy perks up – and emerging economies should have begun preparing months ago.
“This is not about the tapering issue, the tapering was predictable, it was inevitable and desirable, because it signals normality,” OECD chief Angel Gurria said in Sydney.
“The question really is, is tapering what is causing the turbulence?
“Who are the ones that are suffering the most? The ones that had high current account deficits, the guys who still had reforms on their homework.
“What are we saying? That it is a signal, it’s a wake-up call, it’s a sputnik moment if you will – accelerate reforms.”
Indonesian Finance Minister Muhamad Chatib Basri admitted the Fed’s “quantitative easing” had to eventually end.
But he said this weekend’s G20 meeting of finance ministers and central bankers in Sydney must produce certainty about where the US policy is heading.
“I do understand the normal world is the world without QE, so emerging markets should be ready for a world without QE,” he told the Australian Broadcasting Corporation.
“But I think when we move from one equilibrium into another equilibrium, it is very important to continue to communicate to discuss about the roadmap so that we in the emerging markets can prepare.
“I think it is not just Indonesia,” he added.
“Other emerging markets including India, including South Africa, including Brazil also raised this same issue of the need for coordination.”
New Fed chief Janet Yellen is attending her first G20 as Ben Bernanke’s successor, not long after her inaugural testimony to Congress painted a steady-as-she-goes course for Fed policy.
This includes the wind-down of the post-2008 policies that flooded capital markets with cheap cash, with the monthly stimulus reduced by 10 billion to 65 billion and further “measured” reductions at future meetings as long as the US recovery persists.
Yellen said in the February 12 testimony that the Fed was keeping a close eye on market volatility, but offered little sympathy for the plight of emerging economies.
On Thursday, IMF chief Christine Lagarde cautioned the US to be “mindful” of the impact of its stimulus exit on major developing players, although she also said that emerging economies should “mind the shop at home”.
South African Finance Minister Pravin Gordhan is not attending the G20 as he prepares to introduce his 2014 budget.
But ahead of the Sydney meeting, he said his delegation would press the case for more communication.
“South Africa will use the meeting to encourage the global economic community to return to more cooperation and coordination through the G20,” a statement from Gordhan’s office said.
“Our delegation will draw attention to the need for greater care in ensuring clear and consistent communication of policy actions by the very large economies.
“Recent events have demonstrated how financial markets, as one of the channels through which the interconnectivity of global economies takes place, can affect stability in emerging economies.”
On Thursday, British finance minister George Osborne demanded emerging economies get their own houses in order and refrain from “finger-pointing and distractions”, setting the scene for some testy exchanges in Sydney.
Australian Treasurer Joe Hockey said he expected some “robust discussion in the room, which we welcome”.
In a pre-G20 report, the OECD buttressed Hockey’s call for debate on fundamental structural reforms around the world.
It warned that declining global productivity risks ushering in a new and extended era of low growth without such reforms. – AFP