MOSCOW 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 communiqué 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 communicated."
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, said.
"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 well communicated."
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 said.
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 labeled 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 than go.
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 drawing board.
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 communiqué 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 labor 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.
(Reporting by Lidia Kelly, Maya Dyakina, Jan Strupczewski, Gernot Heller, Katya Golubkova, Tetsushi Kajimoto and Alessandra Prentice in Moscow, Anna Yukhananov in Washington, Se Young Lee in Seoul, Tom Bergin in London, Alonso Soto in Brasilia, Leigh Thomas in Paris. Writing by Douglas Busvine/Mike Peacock)