Mark Crosby, Associate Professor of Economics at Melbourne Business School:
The problem with these sorts of pronouncements is that there’s absolutely nothing to make domestic policy makers change policies. If this additional growth is possible, why haven’t policy makers been able to implement changes to achieve it? I don’t think there will be any change in policies and no change in growth.
It was, however, interesting to see that the OECD report released earlier this week was pessimistic about medium-term growth and worried about productivity growth being low and fiscal issues remaining. I think medium-term growth is going to remain weak.
The only interesting thing to come out of the discussions was the desire to find new ways to finance infrastructure spending. [Consulting firm] McKinsey came out with a report last year about how much investment is required in infrastructure globally, around US$57 trillion, and the big question is how to fund that.
Hopefully there may emerge some interesting new ways to finance infrastructure, particularly in emerging countries, and that’s where there’s potential for slightly higher growth, but I think it’ll still be far from 2% faster.
If the IMF reforms move forward, emerging economies will see greater voting rights. At the moment it’s convenient for the US and Europe to keep the current quotas in place, and Europe in particular is overrepresented. The IMF does reflect, in some sense, too much of the interests of the US and Europe. The statement was interesting and hopefully change will come.
Tim Harcourt, J.W. Nevile Fellow in Economics at the University of New South Wales:
The target is ambitious but deliberate. They are trying to change the psychology of recovery by setting an ambitious target that might improve the chances of a stronger recovery, even if they just make half that, it’s still a gain. I think it’s an aspirational target trying to break the shackles of a slow recovery.
The communiqué made strong statements on having a flexible currency. I think if you read between the lines it’s referring to Abenomics in Japan, that it shouldn’t be creating a Pearl Harbour of currency wars and upsetting everybody else’s recovery.
The statement on the IMF reform was made, I think, because there was some talk they would drop a lot of those things and they wanted to firm them up. There’s an argument that the G20 could replace the IMF’s role in global finance, and so this statement said they weren’t interested in replacing the IMF, just reforming it.
Fariborz Moshirian, Professor of Finance, Director of the Institute of Global Finance at the University of New South Wales:
It’s great to see this year’s Summit is more focused on economic growth because, over the last five years, we’ve been working on repairing the global financial system, including dealing with the sovereign debt crisis in Europe and the US banking crisis. Thus, talking about stronger economic growth is useful for the market.
However, the way the statement is phrased doesn’t give responsibility to any member for this objective. This means no-one is going to take full responsibility if such a collective GDP goal is not achieved. In the past, the G20 was criticised for not having an executive power and only relying on peer pressure for achieving its objectives.
The communiqué is trying to strike a balance on monetary policy. It is saying that the US should be mindful of the implications of its monetary policy on developing economies but there’s nothing in this statement that guarantees that the Federal Reserve may consider the interests of emerging economies ahead of its own national monetary policy. More dialogue is required.
They are also asking emerging economies to accelerate restructuring of their economies so that they can attract good investment. In other words, emerging economies should not rely on speculative capital which flows because interest rates are higher in developing economies.
The issue with foreign exchange flexibility is with China, because China’s currency is fixed rather than flexible. A more flexible exchange rate in China could address the trade imbalances between the US and China and may lead to more imports from the rest of the world by China.
Dr. Remy Davison is Jean Monnet Chair in Politics and Economics at Monash University. Dr Fariborz Moshirian is a Professor of Finance and the Director of the Institute of Global Finance in the Australian School of Business at the University of New South Wales, Sydney. Mark Crosby joined Melbourne Business School in January 2003. He is currently an Associate Professor in the School, Associate Dean (International) and Director of the School’s Executive MBA program. Tim Harcourt is the JW Nevile Fellow in Economics at the Australian School of Business at the University of New South Wales (UNSW) and the author of The Airport Economist.
This article was originally published at The Conversation. Read the original article.
