G-20 leaders to secure fragile economies

Prime Minister Lee of Singapore.

RUSSIA - IT HAS been a long road from Pittsburgh to St Petersburg.

Back in the dog days of 2009, when the world's financial system seemed to be in freefall, leaders from the G-20 countries gathered in the old steel-producing town of Pittsburgh in Pennsylvania, United States, to try to figure out a way to save the world from financial meltdown.

That meeting bolstered confidence that these leaders, who account for two-thirds of the world's people and 90 per cent of its gross domestic product, were prepared to do what it would take to fix the problems, and so staved off a collapse of the world's banking system.

The reforms and austerity that followed caused considerable pain for many, but it helped put the world economy back on the path to recovery.

Little wonder then that US officials, speaking to reporters ahead of the G-20 summit that kicks off today here in St Petersburg, Russia, point airily to the "arc from Pittsburgh to Petersburg".

"As we approach St Petersburg, the US economy is in the strongest position of any time since the G-20 began, while also achieving considerable fiscal consolidation. The economy has now expanded for four years, with private demand growth averaging 3 per cent in recent years, and private employers have added more than seven million jobs," a senior US official said.

But, the official added: "While global growth is improving, it remains weak. G-20 members need to boost domestic demand and create jobs. This is our top priority in St Petersburg."

Europe has shown tentative signs of pulling out of recession, while in Japan the "Abenomics" reforms of Prime Minister Shinzo Abe are also helping to pull his country out of its long years of deflation.

Ironically, though, signs of progress in the US economy are giving rise to new concerns. Emerging-market countries, from India to Indonesia, South Africa and Brazil, are all reeling from recent turmoil in financial markets.

This has been set off by fears that since the US is growing faster than some expected, the US Federal Reserve might soon wind down its massive US$85 billion (S$109 billion) a month bond purchases to kick-start the American economy.

Of course, everyone knew that these measures could not go on forever. At some point, the flow of cheap government funds would have to be reversed and rescinded. But few paid much attention to just how or when this might be done. Until now.

Many now worry that a too rapid withdrawal of these funds will jack up interest rates in the US, as well as the value of the American dollar, making US investments more attractive than those in emerging economies.

Hence, the present turmoil in emerging markets, including in Asia, with India and Indonesia being the hardest hit. Their stock markets and currencies have plunged in recent weeks, giving rise to anguished squeals from leaders of emerging economies.

These cries will echo round the Marble Hall of the Konstantinovsky Palace - the 18th century summer residence of Peter the Great - where G-20 leaders will begin their two-day summit later this afternoon.

Anticipating this, the International Monetary Fund said in a briefing note for the summit: "Advanced economies led by the United States will increasingly drive global growth, with emerging countries at risk of slowing due to tighter US monetary policy."

The note, obtained by Reuters, called for global action to boost growth and better manage risks, warning that "some downside risks have become more prominent". It urged policymakers to "guard against risks of disorderly adjustment, including through intervention to smooth excessive volatility".

Sounding a similar warning, the Global Governance Group of countries, dubbed 3G for short, which includes Singapore, Switzerland, Brunei, Bahrain, Chile and Costa Rica, among others, said in a statement yesterday that "global growth continues to be weak and unemployment remains high in many countries".

"Recovery also remains uneven and is progressing at different speeds. While progress has been made, further actions are required to make growth strong, sustainable and balanced," it added.

Mindful of these concerns, the Russian hosts for the summit have been stressing the need for "inclusive growth" and job creation, and made these the key features of the working sessions that leaders will hold today and tomorrow.

Prime Minister Lee Hsien Loong, and Deputy PM and Finance Minister Tharman Shanmugaratnam are here to participate in these talks, with Singapore being one of six non-G-20 countries invited.

Now that the much-hoped-for green shoots of growth seem to be emerging, G-20 leaders meeting under the sunny blue skies in St Petersburg will have to figure out how to nurture them with care if they are to secure the progress that has been made since Pittsburgh.

warren@sph.com.sg

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