G20 officials decry lack of global growth

Updated 21 April 2013

G20 officials decry lack of global growth

WASHINGTON: World finance leaders say they are determined to attack a sluggish global economy in which growth is too weak and unemployment too high. Their problem is arriving at a consensus over the proper mix of policies.
Finance ministers and central bank presidents from the world’s biggest economies issued a joint statement that papered over stark differences between opposing views.
The US and other countries are pushing for less budget austerity and more government stimulus while Germany and others contend that attacking huge budget deficits should be job No. 1.
The discussions were scheduled to wrap up yesterday with meetings of the steering committees of the 188-nation International Monetary Fund and its sister lending agency, the World Bank.
Finance Minster Ibrahim Al-Assaf was leading the Saudi delegation at the G20 and IMF/World Bank meetings in Washington.
On the sidelines of the sessions, he held separate bilateral talks with British Finance Minister George Osborne, Tunisian Development and International Cooperation Minister Al-Ameen Al-Daghri, Pakistan’s Finance Minister Shahid Amjad and Sri Lankan Finance Minister Sarath Amunugama, Zambian Finance Ministe Minister Alexander Shekotada.
The G-20 joint statement revealed no major new policy initiatives and sought to straddle the divide in the growth-and- austerity argument.
The US is being represented at the talks by Treasury Secretary Jacob Lew and US Federal Reserve Chairman Ben Bernanke.
“Strengthening global demand is imperative and must be at the top of our agenda,” Lew said in remarks before the IMF policy-setting group. “Stronger demand in Europe is critical to global growth.”
However, other nations, led by Germany, have resisted a move away from austerity programs, saying it is critical to keep making progress in getting government deficits under control.
German Finance Minister Wolfgang Schaeuble apologized to a Washington audience for being late for a speech after the G-20 discussions, saying, “On reduction of indebtedness ... we have a little bit of differences of opinion all over the world, to be very frank, and that’s the reason I am a little bit late.”
Dutch Finance Minister Jeroen Dijsselbloem, the head of the Eurogroup, encompassing the 17 finance ministers whose countries use the euro currency, said that European nations needed to keep pushing to reduce huge budget deficits but “we can and will adjust” the speed that the deficit cuts are implemented to take into account economic conditions.
The G-20 joint statement singled out the recent aggressive credit-easing moves pushed by Japanese Prime Minister Shinzo Abe, saying they were intended to stop prolonged deflation and support domestic demand.
Those comments were viewed as giving a green light to Japan’s program, which has driven the value of the yen down by more than 20 percent against the dollar since October. That sizable decline has raised concerns among US manufacturing companies that Japan’s real goal is not to fight deflation, a destabilizing period of falling prices, but to weaken the yen as a way to gain trade advantages.
To address those concerns, the G20 did repeat language it used in February that all countries should not use their currency as a trade weapon and guard against policies that could trigger currency wars.
Japanese officials told reporters following the discussions that they were pleased by the support the G20 had given them to pursue growth policies in an effort to lift the world’s third-largest economy out of its two-decade slump.
Haruhiko Kuroda, head of the Bank of Japan, said: “There has been international understanding and acceptance of this, so we can have further confidence to appropriately conduct monetary policy.”
The G-20 statement also said that there was an urgent need for the 17-nation euro currency area to move toward a banking union and reduce the “financial fragmentation” that now exists.
The communique said that “more needs to be done to address the issues of international tax avoidance and evasion in particular through havens.”
The financial crisis that hit the Mediterranean island of Cyprus earlier this year revived concern over countries that serve as tax havens.
In Cyprus, banks held more than $ 162 billion in assets, or roughly seven times the country’s total GDP. Much of that money came from wealthy Russian investors.


Gold rush at Turkish bazaar a test of trust for lowly lira

Updated 15 August 2020

Gold rush at Turkish bazaar a test of trust for lowly lira

  • As precious metal prices soar, Turks rush to buy amid economic uncertainty and a volatile currency

ISTANBUL: Hasan Ayhan followed his wife’s instructions last week and took their savings to buy gold at Istanbul’s Grand Bazaar as Turks scooped up bullion worth $7 billion in a just a fortnight.

With memories of a currency crisis which rocked Turkey’s economy only two years ago fresh in his mind, the retired police officer was among those playing it safe as he queued in the city’s sprawling market, where a screen showed the gold price rise by one Turkish lira ($0.1366) in just 10 minutes.

“I think it is the best investment right now so I converted my dollars to buy gold,” the 57-year-old said. “I might withdraw my lira and buy gold with it too, but I am scared to go to the bank right now because of coronavirus.”

The day after Ayhan bought his gold on Aug. 6, the lira hit a historic low and remains skittish, laying bare concerns that Turkey’s reserves have been badly depleted by market interventions, which are showing signs of fizzling out.

Turks traditionally use gold for savings and there may be 5,000 tons of it “under mattresses,” with more added after the recent buying spree, Mehmet Ali Yildirimturk, deputy head of an Istanbul gold shops association, said.

Although bullion has never been more expensive, vendors at the Grand Bazaar said almost no one was selling their gold jewelry. There are only buyers.

HIGHLIGHTS

  • Currency touched record lows in three volatile weeks.
  • Local holdings of hard currencies at all-time high.
  • All are buyers at Grand Bazaar, despite expensive gold.

“I’ve been chatting with hundreds of people who are thinking about selling their cars or houses to invest in gold,” vendor Gunay Gunes said.

In the last three weeks, as selling gripped the lira, local holdings of hard assets such as dollars and gold jumped $15 billion to a record of nearly $220 billion.

There is no evidence suggesting people are about to pull savings from banks, and this week the lira has hovered around 7.3 versus the dollar, although it remains among the worst emerging-market performers this year.

Demand has eased since Turks withdrew some $2 billion in hard foreign cash from their banks during a March-May period in which a lockdown was imposed and the lira hit its last low. Analysts say that if Ankara cannot boost confidence in the currency, which has fallen almost 20 percent this year, import-heavy Turkey risks inflation and even a balance of payments crisis that will worsen fallout from the coronavirus crisis.

Given foreign investors now have only a small stake in Turkish assets, they say the key for President Recep Tayyip Erdogan’s government is convincing Turks to stop turning to the perceived stability of dollars and gold.

The central bank and treasury did not immediately comment on the dollarization trend or any policy response.

Finance Minister Berat Albayrak, Erdogan’s son-in-law, said on Wednesday the lira’s competitiveness was more important than exchange rate volatility.

The central bank has effectively borrowed on local dollar liquidity to fuel foreign exchange market interventions, which are meant to stabilize the lira.

Through Turkish state banks, which together are “short” foreign exchange by $12 billion, the central bank has sold over $110 billion since last year. In turn, the bank’s gross FX buffer has fallen by nearly half this year to below $47 billion, its lowest in years.

The central bank has said its reserves naturally fluctuate in stressful periods, and the treasury says the bank intervenes at times to stabilize the currency.

But ratings agencies say Ankara should take decisive steps, such as an interest rate hike, to rebuild reserves and restore confidence. Otherwise, rising current account deficits and possible debt defaults could tarnish a solid reputation for meeting foreign obligations.

“Locals don’t want to keep Turkish lira, they’ve been dollarizing and buying gold. Turks have hardly ever done that,” said Shamaila Khan, New York-based head of EM debt strategy at AllianceBernstein, which manages $600 billion. “That is why you need proactive policies because if you get to that stage where locals are unwilling to keep their money in the bank then you’re heading to a balance of payments crisis. That’s when the alarm bells will start ringing.” 

Some banks imposed fees on withdrawals this week, while the central bank has curbed cheap credit channels it opened to ease the coronavirus fallout. Yet while lira deposits now earn more than the 8.25 percent policy rate, their real return is negative with inflation at 11.8 percent.

Traders say such backdoor tightening needs to reach 11.25 percent to stabilize the lira, which has nearly halved in value since early 2018.

Market expectations have risen for a formal rate hike that economists say would reinforce central bank independence, even while it could slow economic recovery.

Politics may stand in the way.Erdogan, whose popularity has dipped this year, holds the view that high rates cause inflation, and sacked the last central bank governor for disobedience.

He said on Monday he hoped market rates would fall further.

But firms such as System Denim, which imports materials and makes clothes for companies like Zara and Diesel, are feeling the pinch from rising costs. Owner Seref Fayat said he converted his 4 percent euro-denominated loans to lira at 10 percent. “No need to take on additional FX risk,” he said. “I pay a higher rate, but at least I can see ahead.”