SYDNEY Feb 24 The Group of 20's proposal to
lift economic activity by 2 percent 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.
Each country has until November to come up with its own
supposedly "concrete" plans, but there is nothing to enforce
their implementation except the moral suasion of other members.
The International Monetary Fund has said it will be watching for
progress on the plans, but it has no power to compel or punish.
The target is also a moving one, as it is based on beating
an estimate for growth which itself is just a best guess.
Forecasting is by its nature a highly imprecise art and the IMF
is forever revising its forecasts up or down. Predicting growth
for the next quarter is tough enough, no matter over five years.
"We're not even sure where we are now on growth. How will we
be able to judge if these targets are being met?" said Michael
Blythe, chief economist at Commonwealth Bank of Australia.
Indeed, the Germans were reluctant to sign up to any hard
target at the G20, but accepted the growth goal because it was
not binding. Others also stressed it was an aspiration, not a
"The results of this process can not be guaranteed from
politicians," German Finance Minister Wolfgang Schauble said
after the deal was signed on Sunday.
And financial markets took little notice of the agreement,
instead focusing on Monday on the same concerns they had on
Friday -- the impact of the U.S. Federal Reserve's taper of its
stimulus and uncertainty over China's economic performance.
For the G20, the prospect of higher growth is an incentive
to help sell the need for structural reforms around the globe --
take some hard decisions now, and end up wealthier and stronger
in five years.
The IMF does have a laundry list of reforms that it says
will boost growth and productivity. It includes everything from
liberalising domestic service industries, to spending more on
infrastructure, to attracting more women into the workforce.
Some are country specific, such as boosting private savings
in the United States to improving healthcare and the social
safety net in China.
But all are politically or fiscally difficult.
"Some of the reforms potentially have a big payoff but they
tend to be unpopular and entail hard grind," says Blythe.
"Take the aging of populations that so many countries are
struggling with. There's no way they can meet future pension
obligations, but dealing with that is a politician's nightmare."
One theme running through many of the proposals was making
it harder for workers to retire early. Australian Treasurer Joe
Hockey who hosted the G20 meeting in Sydney, has started a
"national conversation" about raising the retirement age toward
70, from the current 65.
JAPAN: THE BAD EXAMPLE
Lowering barriers to trade is another much-touted reform,
but the seemingly never-ending talks on the Trans-Pacific
Partnership (TPP) show how intractable that can be.
Twelve countries are pursuing a trade deal that optimists
have estimated could add nearly $300 billion a year to global
income, but the talks are bogged down in disputes over
everything from tariffs to patent rights to environmental
Japan has become a particular sticking point as it tries to
protect its rice, wheat, beef and pork, dairy and sugar sectors,
all of which wield great political influence at home.
The world's third-largest economy is a perfect example of
how hard it will be to meet the G20 goals. Prime Minster's
Shinzo Abe's so-called third arrow of reforms are exactly the
kind of change recommended by the IMF, but they are yet to be
launched and are meeting fierce opposition at every turn.
There has been scant progress on breaking the divide between
well-protected regular workers and a growing army of temporary
staff, while significant immigration remains a social taboo.
"In short, if there is a nice free lunch with plus-2 percent
growth out there, why haven't policymakers found it?" wondered
Mark Crosby, an associate professor of economics at the
Melbourne Business School. "It's just not credible."
Indeed, he argued that there was a good chunk of the world
economy where the reforms being suggested would likely to lead
to slower, not faster growth.
"How is China going to meet the target, particularly if it
is able to achieve the switch from investment-driven to
domestic-demand-driven growth which will lead to slower, not
faster growth?" asked Crosby.
Still, he saw the aim of increasing infrastructure spending
as admirable and said there could be ways to find new financing
mechanisms that would be a modest spur to growth.