G-20 leaders to meet in Shanghai with hopes of stabilising global economy

FINANCE ministers and central bank governors from the Group of Twenty (G-20) advanced and emerging economies will meet in Shanghai this week amid hopes that they can rekindle the "moment of glory" in 2009 when the newly launched group was seen to rescue the world from financial meltdown and economic slump.

There are similarities between the situation then and now as leading monetary and financial officials again confront threats to the global economy - with growth stuck at low levels, emerging markets stumbling, commodity prices reeling, debt levels soaring, currencies gyrating and fears of a systemic crisis.

Great expectations have been aroused since China took over the G-20 presidency from Turkey this year, according to former Goldman Sachs Asia vice-president Kenneth Courtis.

The culminating event of China's presidency will be the Hangzhou summit in September, but this week's meeting is also a key one.

"From the moment the G-20 leadership baton passed to China, Beijing has made it clear that it was committed to investing significant political capital, senior leadership time, effort and resources into moving the agenda ahead on several fronts," Mr Courtis, now chairman of Starfort Holdings, told The Business Times from Beijing.

"Against a background of faltering world economy, the most important issue is the global growth agenda.

China will be proposing much closer coordination throughout the G-20, and in particular between itself, Japan, the US and the European Union."

Japan especially is looking to the G-20 to help restore some sort of order to turbulent currency markets as the yen resumes a climb that Tokyo fears could undo many of the economic gains achieved over the past three years under Abenomics.

Japan's Minister of Finance Taro Aso said last week that exchange rate movements had been "extremely rough" after he and Prime Minister Shinzo Abe suggested that Japan would coordinate policies in currency and other areas with both the G-20 and the G-7 group of economically advanced nations.

But at the weekend, China's Finance Minister Lou Jiwei dismissed what he said were rumours of an international accord to stabilise key currency values. Such a proposal was "just media fantasy (and) does not exist", Mr Lou was reported as saying.

Hopes of decisive action by the G-20 have nevertheless continued to mount in the face of turmoil in currency and securities markets.

The group comprises 19 countries and the European Union, which together represent around 90 per cent of global GDP, 80 per cent of global trade and two thirds of global population.

At its London summit in 2009, in the midst of the global financial crisis, the G-20 earned high marks for decisive intervention in promising major fiscal and monetary stimulus measures to avert economic slump and by beefing up resources of multilateral financial institutions and establishing the Financial Stability Board.

In recent reports, the Paris-based Organisation for Economic Co-operation and Development (OECD) and the Washington-based Institute of International Finance (IIF) have added their voice to growing calls for concerted actions by governments to avert threats to global economic and financial stability.

What actions the G-20 might take remain uncertain. The group has lost some of its aura since 2009 when it was seen as a more legitimate and effective group to reflect the views of the international community than the G-7 advanced nations.

Emerging economies have also lost some of their shine since then.

The Shanghai meeting is likely to focus upon medium-to longer-term structural adjustments in the global economy in order to raise flagging productivity and get growth moving forward again rather than crisis management measures, according to Randall Jones, head of the OECD's Japan and Korea desk.

Other issues under discussion at the two-day meeting in Shanghai on Friday and Saturday will range from US monetary policy and tumbling oil prices to the implications of excess production capacity in China, Japan's Mr Aso suggested in Tokyo at the end of last week.

Options open to the G-20 have diminished, however, since the 2009 summit when the group as seen to be at its most effective, according to the IIF, which will hold its own meeting in Shanghai of heads from some of the world's leading private and public financial institutions.

There is a "worry that policy makers would have limited capacity to respond to intensifying financial turmoil and slowing demand", the IIF said in a report last week.

"In the face of the global financial crisis in 2008-09, there was a strong collective response through unconventional monetary policy and fiscal stimulus." The burden on monetary policy in mature economies has continued to be heavy since then.

"Additional room for monetary policy to provide collective support now seems very limited (and) negative interest rates are not a magic bullet," the IIF report added.

This article was first published on February 22, 2016.
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