Having agreed to only tacit coordination of their varying strategies for boosting growth, financial leaders of the Group of Seven major economies turned on Saturday to housekeeping issues such as terrorist financing, tax evasion and support for fighting pandemics.
The meeting of finance ministers, central bank governors and other top economic leaders is not expected to produce a formal statement but will be wrapped into a communique to be released at a summit meeting a week later in Ise, central Japan.
The officials spent Friday discussing ways to use monetary policy, government spending and longer-term reforms to help support growth. U.S. Treasury Secretary Jacob Lew and other participants played down differences over the leeway for more government spending by countries struggling to keep deficits under control, saying each country must adapt policies to suit their own troubles and finances.
Most of the governments of the G-7 favour more pro-active government spending to help support flagging growth, while Germany has remained more conservative on fiscal matters, regarding structural reforms as crucial.
Mr. Lew said governments and businesses needed to use all possible “policy levers” to spur growth.
The consensus was that while there is no one-size-fits-all approach, all economies are facing a stifling lack of demand, as factories churn out more cars, clothing and computers than consumers are willing to buy.
“We as G-7 believe the biggest economic problem is demand. Demand, there is no demand, and that is the biggest problem around the world,” Mr. Aso said.
Japan’s government has struggled to convince businesses to invest, and to raise wages, at a time when the population is shrinking and rapidly aging. Companies that recently have enjoyed record profits thanks to lavish monetary easing by Japan’s central bank have preferred to hold onto their cash piles or to invest overseas.
That has constrained demand, as consumers with limited purchasing power and savings opt not to spend more than they absolutely must.
One looming problem for Japan is whether or not to raise its national sales tax next year from 8 percent to 10 percent. Mr. Aso has said the tax hike will go ahead barring any major crises or disasters.
But a senior U.S. Treasury official said it would be unfortunate if the sales tax hike ends up being a drag on the economy. The official, who spoke on condition he not be further identified, said “offsets,” such as other tax breaks, might be needed to compensate for the tax hike, to prevent a serious downturn. Japanese officials have also said they fear raising the tax will hurt demand to the extent it could reduce rather than increase government revenues.
Prime Minister Shinzo Abe pledged bold moves to restructure Japan’s economy and revive its competitiveness after taking office in late 2012. But after more than three years it’s become clear such changes are politically difficult and will take time.
The talks at Akiu, a hot springs resort in northeastern Japan, also touched on nonfinancial risks to growth, such as the refugee crisis, terrorism and a looming referendum in Britain over whether or not to leave the European Union. Such a move is viewed as likely to cause major disruptions both in Europe and in global financial markets.
The World Bank, whose president Jim Yong Kim, is attending the talks, launched on Saturday a financing mechanism that creates an insurance market for risk from pandemics. It said Japan would provide $50 million to fund it.
Margaret Chan, director-general of the World Health Organization, said in a statement that the plan would provide a “crucial line of defense” against a rise of new and re-emerging infectious diseases.
The issues of tax evasion and financial transparency were also on the agenda, following the release of the so-called “Panama papers,” which disclosed details of offshore companies set up for companies and wealthy individuals by the Panama-based law firm Mossack Fonseca. Companies registered in tax havens are often used for legitimate business purposes, but also can facilitate tax evasion and money laundering.
Currencies are another hot-button issue for the financial czars.
Mr.Lew said he hoped the talks would keep on track commitments made during recent discussions in China by the wider Group of 20 major economies, where members pledged to not manipulate exchange rates to their own advantage.
A recent rise in the value of the Japanese yen against the U.S. dollar is adding to pressures on Japanese companies who had reaped record profits as the yen weakened in recent years, fattening earnings brought back to Japan in yen terms.
Japanese Finance Minister Taro Aso reiterated Tokyo’s commitment not to engage in “competitive devaluation of currencies.” But he has hinted at the possibility of intervention in the market if Japan deems fluctuations in the yen’s value to be too “disorderly.”
