On the eve of talks among Group of 20 finance chiefs in Sydney, U.S. Treasury Secretary Jacob J. Lew and U.K. Chancellor of the Exchequer George Osborne put the onus on developing economies for shoring up investor sentiment after their currencies suffered the worst annual start since 2010 and the MSCI Emerging Markets Index fell 5 percent.
“Emerging markets need to take steps of their own to have their fiscal house in order, have their structural reforms in place,” Lew said yesterday. Osborne said that the Fed’s pulling back of stimulus “has been used by some countries, frankly, as an excuse.”
Such calls rebut recent complaints from India to South Africa that the Fed’s tapering of asset purchases sparked the market selloff. They instead promote the counter-argument that investors will reward those economies which act to boost expansion and combat flaws such as current account deficits or political discord.
“We’re seeing substantial differentiation in the market place between economies that have made those decisions and economies that haven’t,” said Lew.
The G-20 will back the normalization of monetary policy in advanced countries and pledge to take “concrete actions” to bolster growth, according to a draft communique seen by Bloomberg News. It also will pledge its central banks carefully calibrate and clearly communicate monetary policy.
The Organization for Economic Cooperation and Development used the talks to warn of a “new low-growth era” if policy makers fail to find ways to boost productivity growth, noting emerging markets are vulnerable to monetary tightening elsewhere and lower commodity prices.