IIF CEO Adams: Emerging Market Volatility must focus G20 minds

February 18, 2014

Sydney, Australia, February 18, 2014 - Tim Adams, President and CEO, Institute of International Finance

G20 Must Regain Momentum in Sydney

G20 finance ministers and central bank governors are gathering in Sydney this week at a turbulent time for emerging market economies. They should regard that turbulence as an opportunity to regain momentum in addressing some of the issues that Australia has put on the table for the meeting: promoting stronger economic growth, creating jobs, and making the global economy more resilient to future shocks.

The Australians recognize that this is a critical moment for the world economy and have energized the G20 meeting agenda by narrowing its scope and focusing on these core issues.

The most immediate issue for the G20 is the choppy conditions in emerging markets in the wake of the US Federal Reserve's "tapering" of quantitative easing. Recent volatility in these markets seems to reflect increased investor concerns about macro-economic imbalances, dependence on external financing, and other political and policy uncertainties in several emerging market countries.

Our own analysis shows that the equity selloff in January (a 7 percent fall) closely tracked that of the May to June 2013 selloff (a 17 percent decline) when the Fed raised the prospect of beginning the taper. While 2014 will remain volatile for emerging markets, we don't see a broad downturn. Nevertheless, the G20 should address emerging market turbulence in two ways.

First, they should encourage the U.S. Federal Reserve to continue its prudent management and effective communication of its exit strategy in the months ahead.

Second, the G20 should encourage emerging market economies to take measures to reduce macroeconomic imbalances and to step up implementation of the broad range of structural reforms needed to overcome infrastructural bottlenecks and expand productive capacity.

Beyond these immediate concerns, the G20 must focus on enhancing the role of the private sector in financing infrastructure investment, which would boost economic growth and job creation.

Investment needs are projected to increase from $2.6 trillion per year to $4.3 trillion by 2030, a $50-$70 trillion cumulative increase. The public sector alone cannot meet these financing needs. But the private sector financing is limited by a number of factors

To drive greater investment in infrastructure, we believe the G20 should create the legal and regulatory environment to foster the development of new capital market instruments for infrastructure projects. More marketable financing instruments would increase both the pool of investable and attractive long-term assets, and in turn the supply of private financing from insurance companies, pension funds and other long-term investors.

These efforts to stimulate growth and investment cannot be achieved without a safe and vibrant financial system.

Five years ago, the G20 laid out a series of reforms in the wake of the global financial crisis. The system is now much safer than it was before the crisis thanks to progress made in implementing the global reform agenda and the industry's own actions.

###

The Institute of International Finance (IIF) is a global association of more than 470 financial institutions. Its mission is to support the financial industry in the prudent management of risks, including sovereign risk; the development of sound industry practices and standards; and the advocacy of regulatory, financial and economic policies that are in the broad interests of its members and global financial stability. Within its membership the IIF counts leading global banks, insurers, pension funds, asset managers and sovereign wealth funds, as well as leading law firms and consultancies. More information about the Institute of International Finance is available at www.iif.com.

Media Contacts

Dylan Riddle

Tel: +1 202.857.3626

Email: [email protected]

Share