* Fed stimulus withdrawal eyed warily at G20
* Communique commits to economic rebalancing, careful steps
* China allows banks to lend more cheaply
* IMF paper warns market turbulence could deepen
* G20 backs OECD report on tax dodging
* Japan sticks to stimulus path
By Jan Strupczewski and Gernot Heller
MOSCOW, July 19 The Group of 20 nations, wary of
renewed market volatility, pledged on Friday to shift policy
carefully and communicate clearly as they seek to navigate a
path to recovery.
A final draft communique prepared for G20 finance ministers
and central bankers meeting in Moscow said an action plan to
boost jobs and growth, while rebalancing global demand and debt,
would be readied for their leaders in September.
"We remain mindful of the risks and unintended negative side
effects of extended periods of monetary easing," the draft,
obtained by Reuters, said. "Future changes to monetary policy
settings will continue to be carefully calibrated and clearly
Ministers reviewed the text over dinner with the recent
global sell-off in stocks and bonds and flight to the dollar,
caused by a plan to withdraw U.S. monetary stimulus, uppermost
in their minds.
G20 leaders will meet in St Petersburg in September.
A paper that International Monetary Fund staff prepared for
the Moscow meeting warned financial market turmoil could deepen
unless policymakers were careful.
"The current market turbulence could continue and deepen.
Growth could be lower than projected due to a protracted period
of stagnation in the euro area, and risks of a longer slowdown
in emerging markets have increased," the paper, seen by Reuters,
"The eventual exit from low rates and unconventional
monetary policy in advanced economies could pose challenges for
emerging economies, especially if it proceeds too fast or is not
Ben Bernanke's announcement two months ago that the Fed may
start to wind down its $85 billion in monthly bond purchases
sparked a panicky sell-off, particularly in emerging markets.
Investors were calmed by testimony to Congress this week by
Bernanke, who is not in Moscow, although he said the exit plan
from money-printing remained on the cards.
"Clearly there is a fear among emerging market economies
that after being flooded by capital inflows ... we could be on
the verge of a reversal of that flood," a European Central Bank
official said. "So it is important to dispel that worry."
China is under pressure to encourage domestic demand-driven
growth and allow greater exchange rate flexibility as part of
wider efforts to rebalance the global economy which features a
huge Chinese surplus and matching U.S. deficit.
"We are determined to continue progress with rebalancing of
global demand, which requires internal rebalancing through
structural reforms and exchange rate flexibility," the draft
Beijing offered an early olive branch, removing a floor on
the rates banks can charge clients for loans, which should
reduce the cost of borrowing for companies and households.
Japanese Finance Minister Taro Aso labelled that a step in
the right direction.
The G20 took the lead in the 2008-09 financial crisis and
now faces a multi-speed global economy in which only the United
States appears to be nearing a self-sustaining recovery.
China, for years the engine of global growth, is suffering a
slowdown amid doubts over the stability of its financial system,
Japan has only recently embarked on a radical fiscal and
monetary stimulus experiment, and Europe's economy is more stop
Bank of Japan Governor Haruhiko Kuroda said he would
"strongly pursue" quantitative easing policies to lift growth
and end deflation.
Tokyo has so far been given a free pass at international
gatherings from countries which had previously urged it to get
growth going. But there is growing disquiet about the lack of
progress on structural reforms that were promised in tandem.
Unlike at previous G20 gatherings, exchange rates and the
threat of competitive devaluations barely figured, South Korean
Finance Minister Hyun Oh-seok said.
The BRICS emerging markets caucus - Brazil, Russia, India,
China and South Africa - also met on Friday but joint measures
to limit the fallout of a stronger dollar didn't get beyond the
GROWTH, GROWTH, GROWTH
Washington is putting increasing pressure on Europe to do
more to foster growth. Germany, in contrast, is seeking
internationally agreed debt reduction goals.
The United States and its allies would have been happier
with the communique which referred to credible medium-term
fiscal strategies but said they should be flexible. On growth,
it was more definite, saying "large surplus economies" should do
more to boost domestic sources of growth.
"The priority in the short term is growth, growth, growth,"
French Finance Minister Pierre Moscovici told reporters.
G20 labour ministers held a joint session with finance
ministers, putting the jobs crisis in Europe - where youth
unemployment is above 50 percent in debt-strapped Greece and
Spain - at the centre of the debate.
The G20 also backed a fundamental tax rethink that takes aim
at the loopholes used by multinational firms and responds to
widespread anger among voters hit with higher tax bills to cover
soaring national debts.
The group endorsed a tax action plan drawn up by the
Organisation for Economic Co-operation and Development (OECD)
that said the existing system didn't work, especially when it
came to taxing companies that trade online.
The plan is one of the major 'deliverables' that will go to
the St. Petersburg summit hosted by President Vladimir Putin.