Satyajit Das: The G20's Lords of Finance will magically conjure up growth. Really?

Das Capital: Crucially, the G20 failed to confront the fragility of many emerging markets

Advanced economies committed to a co-ordinated push to boost growth by more than $2 trillion (£1.2 trillion) over the next five years at last month's G20 meeting in Sydney. This additional growth would be driven by "concrete" macroeconomic policies and structural reforms. But there were no specific initiatives, other than a call for additional investment, especially in infrastructure.

The only specific undertaking was that monetary policy would remain accommodative. But this too was dependent on the outlook for prices and growth of individual member nations, a concession to the US central bank's QE "taper" which has created volatility in financial markets.

The targeted additional 2 per cent of economic activity equates to around 0.4 per cent a year. In practice, this would mean real gross domestic product in the G20 would grow by about 3.8 per cent in both 2014 and 2015, above the 3.3 per cent achieved in the past two years. But this would still leave the GDP of the G20 around 8 per cent below its long-term trend, in effect failing to reverse the output losses following the global financial crisis.

In any case, given the poor forecasting record of authorities, the base rate of expansion is uncertain, meaning any additional growth target is meaningless. The IMF and central banks have repeatedly downgraded growth forecasts over recent years. They have discovered what Sebastian Faulks identified in his novel Engleby: "Time makes us pointless."

Apart from well-worn homilies to "fiscal sustainability" and other economic shibboleths, there was little detail on how high debt levels, weak public finances, global imbalances, deflationary pressures, exchange rate instability and other vulnerabilities would be managed. There were only vague reference to exiting from current policies and the normalisation of interest rates.

The commitment to infrastructure investment failed to address how over-indebted governments would finance expenditure in a deleveraging world.

There was no acknowledgement of deep structural issues such as ageing populations, climate change, social stresses and political instability, or their effect on the target.

Crucially, the G20 failed to confront one of the major threats to global recovery identified by the IMF: the fragility of many emerging markets. Emerging market instability has been driven, in part, by the decision of the US Federal Reserve to scale back its purchases of government bonds. Despite the fact that US monetary policy remains expansionary, the taper has resulted in a reversal of capital flows into emerging markets. This has revealed inherent weaknesses of many economies, such as current account deficits, large budget deficits, high debt levels, weak financial systems and a dependence on foreign capital flows. Rapid falls in emerging market currencies, asset prices and foreign exchange reserves have exacerbated the pressures.

In early 2014, the governor of India's central bank, Raghuram Rajan, warned of a breakdown in the global co-ordination of monetary policy. He was reacting to the effects of the adjustment of asset purchases by the US Federal Reserve on the value of the Indian rupee. Mr Rajan argued that the Fed could not ignore the impact of its policies on the rest of the world.

The new Fed chairwoman, Janet Yellen, rejected this accusation. She told US politicians in congressional testimony that the Fed's focus was on the domestic economy. After mouthing the usual platitudes about the need for a strong US economy which would be good for the world, she stated that volatility in emerging markets resulting from US policies was only relevant insofar as it might affect the US economy. It was reminiscent of the US ambassador to the UN Samantha Power's recent articulation of the country's attitude: "This country is the greatest country on earth. I would never apologise for America."

The US position was supported by the German Finance Minister, Wolfgang Schäuble, who blamed India's own internal policies for its economic woes rather than the monetary policies of developed nations.

The G20 meeting communiqué was, unsurprisingly, silent on this issue, reflecting the obvious disagreement of parties on better monetary and exchange rate policy co-ordination. Instead, the Lords of Finance agreed that they would wave their magic wands to magically conjure up growth and prosperity. If that is the case, then the interesting question is: why hadn't they done so until now?

The markets were understandably underwhelmed. Reuters spoke for many, concluding: "The Group of 20's proposal to lift economic activity by 2 per cent over the next five years has so many holes in it, there's no wonder it was the first official target that all members felt happy to agree on."

Satyajit Das is a former banker and author of 'Extreme Money' and 'Traders Guns & Money'

Start your day with The Independent, sign up for daily news emails
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
footballShirt then goes on sale on Gumtree
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine