Friday, February 21, 2014

G20 communique` - will it be worth the paper it's written on? Treasurer Joe Hockey demands a two page document with tangible outcomes.

Institute of International Finance forum in leadup to G20 meetings. Photo: Peter Ryan

Australia's hosting of central bank governors and finance ministers from the Group of 20 (G20) nations is meant to be more than just a few days in the global limelight for the land "downunder" before it's back to business as usual.

Even so it's easy to understand why some people write off G20 deliberations as a just another high-powered gabfest for politicians, bureaucrats and economists who don't necessarily live in the real world.

Around 530 delegates - the big players travelling at the pointy end of the plane - have descended on Sydney and will be pursued by 320 journalists searching for that special speech, briefing or security incident that will make this meeting just a bit different from the last one. 

The cost of hosting the Sydney meeting and the main game in November when G20 leaders come together in Brisbane is $360 million, a price tag that many families might question given the government's pursuit of austerity.

And what do most casual observers remember about similar summits from the past, apart from television news images of protesters storming venues or the obligatory "class photo" of the participants at a postcard landmarks?

Unlike APEC summits, thankfully G20 group photographs do not mandate lairy shirts that defy most fashion conventions. It's said G20 participants take themselve more seriously and prefer standard business attire .

But could this G20 gathering defy predictions from hardened airchair cynics and deliver tangible outcomes that are meaningful to regular people worried about an uncertain world?

The Treasurer Joe Hockey is hoping so - and not just for a successful event that will endorse Australia's presidency of the G20.

On the eve of the G20, the International Monetary Fund has urged advanced economies to be cautious a about withdrawing economic stimulus too rapidly and that emerging nations are suffering now that the US Federal Reserve is taking away a dripfeed of cheap and easy money which is now down to US$65 billion a month.

But the IMF's warning that "the recovery is still weak" and "significant downside risks remain" could be opportunity ringing in the Treasurer's ears as a sign that opportunities for strong-willed action might be running out.

Speaking at an Institute of International Finance forum, Mr Hockey highlighted the challenges of turning good intentions and motherhood statements from recent G20 agreed frameworks into meaningful action.

"In the aftermath of the global financial crisis, the G20 recognised that the recovery was too slow and many downside risks remained. The Framework was the G20's solution to improving its macroeconomic coordination, " Mr Hockey said.

"Unfortunately, despite the G20's initial intention to do so, it did not go down to the next layer of detail and set clear, practical goals.  

"Further, the Mutual Assessment Process set up by the G20 did not provide enough top-down guidance to make sure our individual and collective actions were sufficiently well coordinated to maximise the impact on the global economy."

Mr Hockey's challenge to deliver tangible outcomes as the current steward of the G20 will require hours of hard talk and a fair share of diplomatic arm-twisting.

Veterans of forums like the G20 say peer pressure is a key tactic in building trust and collaboration between players who have to deal with matters of self-interest.

It is anticipated that "robust discussions" are likely over negotiations for the G20 to set a global growth target - something the G20 has never set.

Australia, Canada and the United States are known to be advocates of a target but it's been reported that Germany will resist, citing the setting of a target as an "antiquated" form of economic planning.

Apart from the slogan of "going for growth", the G20 agenda will look at investment, trade, taxation, employment and regulatory reform.

But the communique that will be issued when the summit ends late on Sydney will be key to the perception of the event's success as a critical building block to the G20 leaders summit to be held in Brisbane in November.

The drafting of the communique itself will be a challenge after Joe Hockey ordered that it be no longer than two pages.

In the recent past communiques have extended to 27 pages, so Mr Hockey's plea for jargon-free brevity will most likely be delivered with the fine print coming in a separate document.

G20 delegates have told the ABC the challenge this time around will be to "do it better than it's been done in the past".

The test, come Sunday, will be whether the meetings end with a communique that lays the groundwork for tangible outcomes or whether the document will be more of the same and not worth the paper it's written on.

Thursday, February 20, 2014

IMF issues warning to G20 on dangers of stimulus withdrawal

The International Monetary Fund says risks of turmoil in emerging markets and deflation in Europe are threatening the global economic recovery.

The warning that "the recovery is still weak" and "significant downside risks remain" comes as as central bankers and finance ministers from the G20 prepare to meet in Sydney.

The latest reality check from the IMF comes as the US Federal Reserve re-affirms its commitment to gradually trimming back its massive economic stimulus program.

Here's my analysis from this morning's edition of AM.

But in a paper prepared to the Sydney meetings, the IMF urged major economies to be cautious about winding back the stimulus.

"Advanced economies should avoid premature withdrawal of monetary accommodation as fiscal balances continue consolidating. Given still large output gaps, very low inflation, and ongoing fiscal consolidation, monetary policy should remain accommodative in advanced economies," the IMF says.

"Given still large output gaps, very low inflation, and ongoing fiscal consolidation, monetary policy should remain accommodative in advanced economies."

The IMF says there is "scope for better cooperation" on undwinding stimulus "including wider central bank discussions of exit plans".

The US Federal Reserve's stimulus program is now US$65 billion per month having fallen from US$85 billion per month late last year.

Federal Reserve chair Janet Yellen appears committed to continuing the stimulus windback after the minutes from the Fed's January meeting have endorsed predictable cuts of US$10 billion unless the US economy's performance surprises.

The IMF says "a new bout of financial volatility" has affected emerging economies as the stimulus windback forces markets to "reassess their fundamentals".

"Markets are showing signs of stabilising recently, although they are still fragile, on the back of actions by key emerging economies to shore up confidence and strengthen their policy commitments," the IMF says.

"This episode, however, underscores vulnerabilities and the challenging environment for many emerging economies. The rapid jump in global risk aversion had also driven down advanced economy equity prices."

The IMF believes its global growth forecast issues in January of 3.75 percent, up from 3 percent in 2013, is achievable "assuming that the impact of the recent volatility is shortlived."

The IMF makes special mention of the euro area -still mired in the sovereign debt crisis - where low inflation and falling inflation forecasts raised the risk of deflation.

"A new risk stems from very low inflation in the euro area, where long-term inflation expectations might drift down, raising deflation risks in the event of a serious adverse shock to activity."

Wednesday, February 19, 2014

ASIC grilled by Senate inquiry over David Jones controversial share trading by directors

A Senate inquiry today grilled executives from Australia's corporate watchdog over their investigation into share trading by two directors of the department store David Jones.

The David Jones chairman Peter Mason and two directors, Steve Vamos and Leigh Clapham, have resigned over the affair.

Today the Australian Securities and Investments Commission executives were asked why they did not find that the share deals amounted to insider trading when they took place before the release of positive sales data.

Here's my report broadcast on The World Today.

Tuesday, February 18, 2014

Reserve Bank says "little chance" of a change in interest rates

Interest rates look set to remain on hold for the rest of the year as deep cuts to the official cash rate work their way through the economy.

In the minutes from its February board meeting, the Reserve Bank said there was "little chance of a change in monetary policy at present."

"If the economy evolved broadly as expected, there would likely be a period of stability in interest rates," the minutes say.

Board members signalled that the rate cutting strategy had most likely ended and said "it was prudent to keep policy unchanged while assessing the continuing impact of that stimulus."

The cash rate was left steady at 2.5 percent at the February meeting, having fallen steadily from a recent peak in November 2011 of 4.75 percent.

The RBA is now seeing evidence that the rate cuts are working with more timely indicators having been more positive for consumption, dwelling investment, business conditions and exports.

The board meeting took place on February 4, before the official unemployment reading for January rose unexpectedly to six percent - the highest level in more than decade.

Before the shock jobs result, many economists predicted the Reserve Bank's next rate movement would be up.

However, now most agree the cash rate will remain steady for a long period before the RBA makes a move.

The minutes also show the RBA debated reasons for the last ABS inflation reading coming in higher than expected at 0.9 percent in the December quarter and 2.7 percent annualised.

The RBA believes there are "several possible explanations" but believes "noise" had presented "something of a puzzle in interpreting the mix of activity and price data".

That could mean the RBA is not overly concerned about rising inflation putting pressure on the steady cash rate.

The minutes do not mention concerns about the possibility of a housing bubble in the big real estate markets of Sydney and Melbourne.

However, the RBA noted that "the effects of low interest rates were clearly evident in the housing market."

The Reserve Bank said late last year that talk of a housing bubble was "excessively alarmist."

The board noted the impact of lower rates on the value of the Australian dollar which was 15 percent below its most recent peak of early 2013.

The Australian dollar was buying 90.55  US cents after the release of the January minutes.

Virgin's John Borghetti accuses Qantas of peddling myths to secure government debt guarantee

The Federal Government looks increasingly likely to give Qantas a debt guarantee to help it through its financial crisis.

But the flying kangaroo's chief rival Virgin Australia says it will ask for the same deal within 24 hours if it goes ahead.

Virgin's chief executive John Borghetti has come out swinging, accusing Qantas of peddling myths to twist the government's arm.

Here's my extended interview with John Borghetti broadcast this morning on the ABC's "AM" program.