Stimulus exit needs global coordination
- Source: Global Times
- [02:53 September 21 2009]
- Comments
By Cong Mu
As another Group of 20 (G20) summit draws near, economists advised global leaders to accommodate each other and work together on stimulus package exit strategies, as each country will recover at its own pace.
G20 leaders will meet Thursday and Friday in Pittsburgh, a city in Pennsylvania of the US, to discuss further actions to assure a sustainable recovery from the global economic crisis.
China didn't have to use its stimulus money to fix problems entrenched in the financial system while the US has used the taxpayers' money to clean up the bank's toxic assets and shore up confidence, said Ding Yifan, deputy director of the Institute of World Development (IWD) at the Development Research Center of the State Council.
The US Treasury ended its Guarantee Program for Money Market Funds Friday, having provided insurance to the participating mutual funds for one year.
In comparison, China has used most of its $586 billion stimulus money to improve social security networks, upgrade technology and infrastructure projects like roads and railways.
In Northeast China's Heilongjiang Province, the wives of many hired farmhands have never worked, but now they're receiving social security payments, said Ding, who just returned from a field study in the province.
China has been mainly affected by external shocks, and there are still overcapacity problems, said Wang Yiming, deputy director of the Academy of Macroeconomic Research at the National Development and Reform Commission.
If China stops funding incentive programs too early, the recovery may become W-shaped, he added.
"We can only consider exit strategies from stimulus policies after domestic growth has gradually gained momentum,"Wang said.
The economists believed the US will not be the first to exit from its stimulus plans and the global leaders need to discuss policy coordination on their exit strategies at the Pittsburgh Summit.
It's not clear whether the US economy has stabilized, and people need to wait until early October when the federal government publishes its fiscal year reports, Ding said.
"Since world economies are highly interdependent now, I doubt one country can effectively exit alone,"Wang said.
A major concern about the accommodative policies is inflation, economists warned.
China used monetary policies to successfully fight against inflation in the 1990s, but now it has become more difficult, because the country is facing a possible 'imported' inflation, Ding said.
The inflation is driven by investment instead of economic growth, said Tan Yaling, a Beijing-based finance expert.
Stimulus plans around the world have pumped excess liquidity into the global market, driving up commodity prices, such as oil and gold, while the economy has barely recovered, she explained.
