A Closer Look at the G20’s Stimulus Plan

While most of us were busy enjoying the weekend, G20 leaders were discussing the fate of the world economy. Central bankers and finance ministers from the G20 nations agreed to come up with policies that would boost economic growth by $2 trillion, which would amount to a 2% increase in global GDP.

In their official communiqué, policymakers noted that they are acknowledging recent signs of improvement but would rather not be complacent when it comes to economic performance. In the end, they agreed to develop new measures to make sure that the world’s largest nations stay on the recovery track.

In particular, G20 leaders agreed that advanced economies should stick to their loose monetary policies, which suggests that we might not see any additional tightening moves in the near term. As for emerging nations, they are recommended to come up with measures to tame inflation. On top of that, G20 leaders also pointed out that governments should focus more on new infrastructure projects.

While the idea sounds promising when it comes to preventing an emerging markets crash and possibly another recession, the rest of the proposal seems lacking in detail. Bear in mind that it’s not unusual for the G20 to come up with grand reform plans only to fall short in execution.

A major factor that prevented thorough implementation of the G20’s plans in the past is that of domestic challenges. In the aftermath of the 2008 financial crisis, the G20 came up with the Mutual Assessment Process, which aimed to monitor individual growth targets and timeframes. However, governments were unable to commit to this reform when faced with domestic opposition. A few years later, a G20 agreement to rebalance the global economy failed to follow through when nations couldn’t agree on thresholds for trade balances and currency reserves.

In the latest G20 Summit, leaders agreed to be open about their monetary policy plans and properly coordinate their exit strategies. They also agreed that they wouldn’t want to see any more surprises and that they should do their part in keeping market volatility contained.

Naysayers, however, remained skeptical on how individual nations can fulfill this plan and it appears that the markets were unimpressed as well. It remains to be seen whether developing and emerging nations will cooperate to keep the global economic recovery sustained or not. Do you think this is possible?