Emerging markets must be heard
Updated: 2013-09-06 02:57
1 The tapering-off of the US Federal Reserve's quantitative easing policy has caused some turbulence in emerging economies such as India, Indonesia and Brazil. With the prospect of excessive easing of monetary policy ending and resulting in an increase in US power, international capital flew out of these countries and the local currency values tumbled. But it is worth noting that the turmoil was also caused by these nations' domestic deficiencies, such as excessively high deficits in current accounts and loose capital account management regimes.
The Fed has good reasons to scale back its huge bond-buying program. The initiative was in response to the country's economic crisis and the policy had a role in the US and global economic recovery. Now, with growth recovering and the jobless rate subdued, it is reasonable for the US to cease its QE. Also, it did signal to the world before taking action.
The US QE tapering has a limited impact on China. China has a good current account surplus and $3.5 trillion in foreign reserves. Its capital account remains controlled. Actually, as the US tightens its money supply, China could have more room to adjust its monetary policy independently.
2 The G20 summit provides a platform for the BRICS countries and other emerging economies to present their concern over the tapering off of the US quantitative easing policy. China should respond to these voices. China and other emerging economies should make the case that the US needs to be careful with the timing and rhythm of its exit.
The BRICS nations should also build and strengthen the Contingent Reserve Arrangement, which now stands at $100 billion, with China as the largest contributor. This fund could be used for emergencies such as this round of local currency devaluation crises.
3 The G20 is more representative than the G8. China should take more initiative in aligning other BRICS and developing economies to articulate their concerns at the summit. G7 countries usually hold meetings before the G20 summit to coordinate the voice they present at the G20. Why should BRICS nations not choose to do the same? Why not expand the BRICS group? Why not invite South Korea, an important world economy, to the group?