G-20 to discuss how to keep emerging economies healthy

Kyodo

Finance chiefs from the Group of 20 nations are likely to discuss how to prevent emerging economies from stalling when they gather Friday for a two-day meeting in Moscow, with market volatility casting a shadow over their future economic prospects.

The finance ministers and central bank governors of the leading economies will gather at a time when speculation about the U.S. central bank trimming its asset purchases and concern about a Chinese slowdown are driving down stock prices in some developing nations and the value of their currencies.

The global financial market has turned volatile after U.S. Federal Reserve Chairman Ben Bernanke said June 19 that the current monetary easing step through asset purchases could be tamed later this year if the economy improves as forecast.

Bernanke’s remarks have fanned fears that a possible scaling back of the Fed’s monetary stimulus could trigger a massive outflow of capital from emerging countries, weighing on their economies that have played a key role in world economic growth.

Some finance chiefs of developing nations may ask the world’s biggest economy to carefully communicate with financial market participants when seeking an exit from its unconventional monetary easing policy, sources said.

China’s economy is also expected to attract attention at the G-20 meeting amid growing anxiety about the potential impact of its “shadow banking system,” under which a large amount of loans have been provided by a range of nonbank entities.

Shadow banking could incur risks similar to those that brought about the U.S. subprime mortgage crisis in 2007, which led to the collapse of U.S. investment bank Lehman Brothers Holdings Inc. and the global financial crisis the following year, analysts said.

The G-20 economies are likely to urge China to provide more information about the shadow banking system, the sources said.

With expectations of a Chinese economic slowdown intensifying, the International Monetary Fund recently cut its growth projections for the world’s second-largest economy. It projected the Chinese economy will expand 7.8 percent this year and 7.7 percent next year.

Meanwhile, Japan, whose economy is picking up on the back of Prime Minister Shinzo Abe’s policies dubbed “Abenomics,” is expected to explain the new growth strategy aimed at bolstering private-sector investment, drawn up last month, government officials said.

Finance Minister Taro Aso, who is scheduled to attend the G-20 meeting along with Bank of Japan Gov. Haruhiko Kuroda, plans to pledge again to restore the country’s precarious fiscal health, the worst among advanced economies, they said.

The Abe Cabinet OK’d an economic and fiscal plan in June in which it set a goal of halving the ratio of the primary balance deficit to gross domestic product by fiscal 2015 from the level in fiscal 2010 and turning the balance into a surplus by fiscal 2020.

The Abe administration has said concrete measures toward fiscal rehabilitation will be specified in a medium-term plan to be mapped out this summer.

The financial meeting in Moscow is a preparatory meeting for the G-20 summit slated to be held in St. Petersburg, Russia, in early September. The G-20 economies have called on Japan to “define a credible medium-term fiscal plan” before the summit.

The G-20 includes Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States and the European Union.

The G-20 officials are also likely to exchange views on how to prevent tax avoidance by multinational corporations.