G20 divided over US policy impact on emerging markets

Finance ministers and central bank governors from the Group of 20 major developing and advanced economies meeting in Sydney, Australia, look unlikely to achieve any major policy breakthroughs that could push global growth, investment, financial regulation or cooperation in cross-border taxation with the rich nations mounting a defence of their expansionary monetary policy.

The rich nations pushed back on Friday against emerging market complaints about the spillover effects of their monetary policies, saying they had to get their own houses in order and get on with the agenda of boosting global growth.

Instead of trying to coordinate action, finance ministers and central bank chiefs from the Group of 20 developed and emerging countries who met ahead of the G 20 summit on 22-23 February, have started talking at cross purposes.

Emerging nations like India, Brazil, South Africa, etc, concerned about the volatility in markets, want the US Federal Reserve to calibrate its winding down of stimulus so as to mitigate the impact on their economies and financial markets.

Developed members, however, hold that the troubles with the emerging world are mostly home-grown and domestic interest rates have to be set with domestic recoveries in mind.

Emerging markets blame the slowdown in China's economic growth and the sell-off in emerging bond, currency and stock markets that erupted last month to the winding down of US Federal Reserve's monetary stimulus policy.

Emerging market nations are seeking clarity from the United States on the trajectory of the stimulus and its winding down.

US Treasury Secretary Jack Lew said, "Emerging markets need to take steps of their own to get their fiscal house in order and put structural reforms in place."

"At this moment, we do not have a clear understanding of whether some responsibilities will be taken or whether there will be some agreements that will minimise the negative impact from these (US) measures," said a Russian official. He said the final communiqué will address the issue.

"We have a preliminary version, but it is still a very rough draft, especially when it comes to that very point," the official said, adding, "It is difficult to say now how it will be reflected in the final document of the ministers."

The G20 discussions are a follow-up of a framework adopted at the G20 summit in Russia last fall.

"While there is a discussion on how the whole process should be drawn up, how the strategies should look, what they should involve, it is premature to talk about filling them with specific parameters and specific results that can be achieved," the official said.

Australia, which is the current president of the G20 said it would push for agreements on growth strategies, but the Europeans led by Germany indicated they would reject any specific goals.

German's Wolfgang Schaeuble told CNBC that emerging countries first had to do their homework, before demanding solidarity from the rest of the G20.

Finance ministers of Japan and Britain also echoed similar sentiments.

Japan's Taro Aso said the Fed's tapering of its stimulus programme was positive as it reflected an improving US economy, even if it raised the risk of sharp capital outflows from other countries.

"It is important for emerging economies to correct these things by making their own efforts," Aso said in Tokyo.

Developing nations from South Africa to Turkey to Russia have seen their currencies crumble in recent months as the prospect of higher returns in the US sucked foreign funds from their economies.

South Korea's deputy prime minister and minister of strategy and finance Hyun Oh Seok suggested the Fed and other major central banks could at least strive to avoid surprises in their policy.