GLOBAL finance chiefs pledged to refrain from competitive currency devaluations as the world economy faces increased volatility.
The International Monetary and Financial Committee (IMFC) reiterated its commitment to avoid “all forms of protectionism and competitive devaluations,” according to a statement released in Lima on Friday. The International Monetary Fund’s (IMF) main policy committee represents 25 of the institution’s 188 member nations.
“Careful calibration and clear and effective communication of policy stances are essential to help limit excessive market volatility and negative spillovers,” the IMFC said at the fund’s annual meetings in Peru.
A slowdown in emerging markets driven by weak commodity prices forced the Washington-based IMF to cut its outlook this week for global growth in 2015 to 3.1 percent from a July forecast of 3.3 percent. This week’s meeting was dominated by the prospect of higher US interest rates and China’s economic slowdown. The IMF warned that over-borrowing by companies has left emerging economies vulnerable to financial stress and capital outflows.
In 2015 emerging markets will see their first year of negative capital flows since 1988, as investors pull $541 billion from countries, such as China and Brazil, the Institute of International Finance said in a report last week.
Advanced economies should maintain loose monetary policy where appropriate, while emerging markets need to pay special attention to foreign-currency exposures, the committee said. “Exchange-rate flexibility, where feasible, can act as a shock—absorber,” the panel said.
It called on the IMF to stand ready to respond promptly to demand for its loans. The fund will conduct a review of the international monetary system, including the global financial safety net, according to the statement.
Clamp down on multinational tax evasion
Finance officials from the world’s 20 biggest economies have committed to toughening laws and boosting cross-border cooperation to prevent multinational companies from avoiding as much as $250 billion a year in taxes.
The unanimous agreement was announced on Friday in Peru’s capital on the sidelines of the IMF’s annual meeting. The plan, to be presented to heads of state for approval next month at a Group of 20 summit in Turkey, seeks to address concerns about whether large companies such as Apple and Google are paying their fair amount of taxes.
The 15-point action plan was drafted by the Organization for Economic Cooperation and Development (OECD) in consultation with more than 100 countries. It seeks to eliminate the so-called tax shopping for most-favorable rates, profit shifting and a host of other strategies estimated to cost between 4 and 10 percent of global corporate income tax annually.
“This isn’t about whether you have high taxes or law taxes, it’s about whether you’re paying your taxes,” British Finance Minister George Osborne said.
Angel Gurria, secretary general of the OECD, said the plan’s implementation will be key given the wide range of capacities and resources of tax authorities around the world. To that end, Treasury Secretary Jacob Lew said the US is doubling funding to help developing countries improve their technical expertise.
“This isn’t just to ensure sustainability of public finances but recover the trust of our citizens who are coping with economic hardship,” said Gurria.
Bloomberg News and AP
Image credits: AP/Geraldo Caso Bizama