Next week’s G20 summit will discuss the volatility in emerging markets that erupted after the US Federal Reserve started to talk about scaling back its massive bond-buying program, Canadian officials said on Friday, but they suggested the Fed’s move was not the only reason for the turbulence.
A senior official, briefing reporters on condition of anonymity, said the summit in Russia of the G20 leading economies will take time to examine the reasons for the market volatility in India and other countries.
He said there were several factors involved, among them improving private-sector demand in the US that is encouraging the Fed pullback, which he said is a good-news story that creates challenges in other parts of the world.
“But some of these challenges also reflect the state of their own economies,” he said.
India is so concerned about the market tumult that it is seeking support from other emerging countries for coordinated intervention in foreign exchange markets. India’s currency has fallen by 20 percent against the US dollar since May.
A Canadian official who was willing to be named, Andrew MacDougall, spokesman for Canadian Prime Minister Stephen Harper, said there was an irony in the criticism of the Fed’s move to reduce its bond-buying program, known as quantitative easing.
“We’ve kind of heard the opposite complaint when quantitative easing was happening, that that was disrupting flows as well, and now that they’re moving in the other direction, that causes a different set of challenges,” he said.
MacDougall also said Canada would continue to press at the G20 for progress on reducing government deficits and debt, a policy push that has received less emphasis of late in light of high unemployment in Europe and elsewhere.
“We want to see that fiscal consolidation continued,” he said, saying that Harper felt it was important for the G20’s credibility that it follow up on previous commitments to cut government debt. “If you don’t have your books in order, it limits your ability to maneuver, so the longer you put that decision off, the harder your choices become.”
The official who spoke on condition of anonymity said that countries at the St Petersburg summit, which begins on Thursday, would present individual fiscal strategies, rather than the G20 agreeing on some across-the-board reduction in the debt burden.
“It’s not a one-size-fits-all approach,” he said.
Another government official, who will be going to the summit, said countries that need funds for long-term investment in infrastructure should look at what can be done to make themselves more attractive to private investment from banks, pension funds and insurance companies.
“India’s a good example. India has huge infrastructure financing needs … and certainly there has been a concern expressed by Indian officials in the past that there’s less financing available than there used to be,” he said.
In international debates, he said, there have been calls for governments and multilateral development banks to fill the gap.
“I think Canada’s view would be that the evidence suggests that actually some of the concerns are about economic fundamentals,” he said. “They’re about barriers to foreign investment, they’re about regulatory issues and so on, and it kind of behooves countries to look at what more they can do to strengthen the climate for investment, because there is a lot of private-sector money that’s available.”