• By
  • Ian Talley

SYDNEY—The Group of 20 largest economies will back a rough plan in their final communique Sunday to boost global growth by two percentage points over the next four  years, leaning on central banks to keep the cash spigots open as governments struggle to enact deeper policy overhauls.

The strategy is based on an IMF template prepared for the G20. What does it actually require from countries?

Here’s a summary of the IMF’s main growth-boosting recommendations:

-          The Federal Reserve should clarify guidance on a gradual exit from its easy money policies and its return to higher interest rates, and temper the wind down of its bond-buying program according to evolving economic conditions “to mitigate the risk of excessive market volatility.”

-          More aggressive monetary easing is needed from the European Central Bank to counter deflation risks. The euro zone also bolsters its financial system backstops, including allowing direct capital injections into weak banks from the currency union’s bailout funds.

-           The Bank of Japan eases policy further if progress toward its inflation target stalls or reverses.

-          The U.S, euro zone and Japan continue to cut long-term debt levels without curbing near-term growth by tightening budgets, raising taxes and reforming entitlement programs such as healthcare and pensions.

-          Emerging markets such as India and Turkey need to continue raising interest rates to tame inflation and build credibility with investors.

-          Instead of using foreign-currency stockpiles to prop up the value of local currencies under pressure by investor flight, emerging markets should allow freer movement of their exchange rates to help absorb capital outflow shocks. (As currencies depreciate, it makes local goods more competitive in the global marketplace, thereby boosting foreign demand and spurring growth.)

-          Authorities in many developing countries also need to strengthen their oversight of their financial systems, ensuring companies aren’t borrowing more than they can safely afford, especially from abroad, or investing too much in risky ventures.

-          Countries with large trade surpluses such as Germany and China boost domestic consumption, move away from reliance on exports, a policy other countries complain comes at their expense.

-          Making changes to labor and product markets that revive economic competitiveness in the global marketplace. Efforts here are country-specific, but include measures such as encouraging more women to enter the labor force in Japan and allowing more competition in protected industries in Italy.

-          Figuring out how to get sidelined capital wary of high-risk investment to finance major infrastructure projects around the world.



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