Friday, October 21, 2011

The G-20 Communiqué

International communiqués usually make for extremely boring reading. In this regard, they compete with Financial Accounting Standard Board statements, though the latter actually make sense if you take the time to study them, and they can be quite important. International communiqués, though, often make less sense the more one pores over them, and, while sometimes they are signaling something important, at other times, they seem to be produced even if there is nothing new to say, because that is what is expected.

The acronym laden “Communiqué of Finance Ministers and Central Bank Governors of the G-20:  Paris, France, 14-15 October 2011” is a case in point.  On the first page of this document there is the following sentence: “Advanced economies, taking into account different national circumstances, will adopt policies to build confidence and support growth, and implement clear, credible and specific measures to achieve fiscal consolidation.”  The more one thinks about this sentence, the more it becomes clear that the finance ministers and central bank governors did not agree to anything here, except that each country would do what it thinks best. The communiqué goes on to say:  “Those with large current account surpluses will also implement policies to shift to growth based more on domestic demand. Those with large current account deficits will implement policies to increase national savings…”  I suppose it is left as an exercise to the reader to divine what these policies are.

With respect to emerging market countries, the communiqué starts off with this informative declaration: “Emerging market economies will adjust macroeconomic policies, where needed, to maintain growth momentum in the face of downside risks, contain inflationary pressures and endeavor to enhance resilience in the face of volatile capital flows…”  Perhaps someone thinks this means that a significant agreement has been reached.

To be fair, in some badly written prose, there are some more specific statements later on in the document mostly reaffirming what the G-20 has said in the past.  As for the U.S., the agreement by the Fed and the Treasury on regulatory matters may not mean much unless the various bank regulators, the CFTC, and the SEC agree.

What is dismaying is that this mushy, poorly drafted document must have consumed many hours of staff time in all the countries of the G-20 as staffers participated in numerous meetings and conference calls to negotiate this document, which hardly anyone reads but whose absence would have been noted. Its vagueness about economic policy, though, does serve to signal that there is no real agreement in the G-20 about what the appropriate policies should be.  That is probably not what the drafters intended.

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