Tags: Rebuke | G-20 | Action | Logjam

In Rare Rebuke, G-20 Seeks 'Urgent Action' on US Logjam

Friday, 11 Oct 2013 03:04 PM

 

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Global finance chiefs demanded the U.S. take “urgent action” to resolve the political logjam threatening to trigger a default of the world’s benchmark debt.

As President Barack Obama and Republican lawmakers sought a pact to lift the U.S. debt limit, Group of 20 policy makers meeting elsewhere in Washington singled out the U.S. for criticism. The fear, voiced by officials from China to Europe, is that failure to strike a deal would roil financial markets and risk propelling the global economy back into recession.

“The U.S. needs to take urgent action to address short- term fiscal uncertainties,” the G-20’s central bankers and finance ministers said in a statement.

U.S. stocks rose for a second day Friday as politicians debated extending the nation’s $16.7 trillion borrowing authority before an Oct. 17 deadline.

A month since the U.S. Federal Reserve surprised investors by deciding not to slow its asset-purchase program, the G-20 officials pledged future changes to monetary policy would be “carefully calibrated and clearly communicated.”

Alert to complaints from emerging markets that they could suffer once stimulus is withdrawn, the group promised to monitor “spillovers” in which actions taken by one economy hurt another.

Rare Rebuke

The call for U.S. action was a rare G-20 rebuke of the world’s largest economy, which typically uses such occasions to lecture other nations on their policies, be it China on the value of the yuan or Europe on its need to tackle fiscal and banking weaknesses.

The Washington fight cast a shadow over a meeting at which officials welcomed signs that advanced economies are finally showing “early signs of improvement,” even as many emerging markets slow. That marks a reversal of the trends which have shaped the world economy since it escaped its 2009 recession.

With the U.S. government now closed for 11 days, U.S. Treasury and Fed officials said the debt ceiling impasse will probably be broken by Oct. 17, Russian Finance Minister Anton Siluanov told reporters Thursday after a G-20 dinner.

U.S. lawmakers “are all aware of the seriousness of the situation and the impact on the global economy should there not be a deal,” U.K. Chancellor of the Exchequer George Osborne told reporters Friday.

Haven Status

U.S. Treasury Secretary Jacob J. Lew has used the visit of his international counterparts to highlight the risks of inaction. Warning the safe haven status of U.S. assets was being jeopardized, he told the Senate Finance Committee Thursday that “the world actually counts on us being responsible.”

A secondary theme throughout the G-20 talks was the outlook for monetary policy, with emerging markets saying that reducing stimulus in rich nations will harm them by encouraging an exit of capital and higher borrowing costs.

Emerging-market bonds and currencies fell earlier this year as Fed officials signaled they may soon start to taper their $85 billion bond-buying program. The U.S. central bank then surprised investors last month by leaving the rate of purchases unchanged.

Members of the Group of 24 developing nations said after meeting Thursday that they are “concerned by the higher volatility in global financial markets following indications of exit from unconventional monetary policies” and urged advanced nations to be “mindful of negative” side effects.

While acknowledging that need, the U.K.’s Osborne said “spillovers should not be an excuse for emerging economies not doing what many of them need to do” to improve their economies.

Adopting a minority view within the G-20, Canadian Finance Minister Jim Flaherty urged Fed officials to end their quantitative easing as “quickly as they can.”

© Copyright 2014 Bloomberg News. All rights reserved.

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