WSJ: G-20 Countries To Consider Slowing Pace Of Budget Cuts

MOSCOW -- With a sustained economic recovery proving elusive, finance officials from the Group of 20 industrialized and developing nations will take a look at slowing down the pace of government budget cuts when they meet Friday and Saturday.

G-20 leaders agreed in Toronto in 2010 to at least halve their budget deficits by 2013 and stabilize or reduce government debts by 2016. That was supposed to send a clear signal to bond investors that the world's powerhouse economies were serious about tackling their debt woes.

But many G-20 members now worry that a determined effort to meet those commitments -- with some of the members now off track to do so -- could snuff out an economic recovery.

"We'll propose to change the Toronto agreements, possibly by changing its parameters. They are not met at the moment and they should be changed," said Anton Siluanov, finance minister of Russia, the host of the talks.

Many G-20 finance chiefs now accept they overestimated the impact budget belt-tightening would have on their economies, particularly in Europe.

The IMF, the G-20's economic adviser, recently said that while fund economists in 2010 expected that cutting 1 euros from the budget would cost around 50 European cents in lost growth, the actual impact was more like 1.50 euros for each 1 euros cut.

Figures released Thursday showed the German and French economies contracted in the final three months of last year. Figures from the U.S., Japan and the U.K. tell a similar story.

"One-third of the G-20 is in recession. We need to do more to get people back to work and Toronto 2.0 is not the right answer," said U.S. Treasury Under Secretary Lael Brainardearlier this week. "We must avoid jeopardizing the recovery with a premature shift to restraint."

Germany has long been a staunch advocate of austerity. But with its own economy contracting at the sharpest pace since early 2009 in the latest quarter, pressure will likely increase on Berlin to back a more lenient austerity schedule.

That isn't to say countries don't need to develop medium-term budget-tightening plans. Rather, Washington argues for deficit and debt goals better balanced against "the imperative of growth," Ms. Brainard said.

In seeking to boost growth, many G-20 members have resorted to unprecedented levels of monetary-policy stimulus. In many cases, that has weakened their currencies and created problems for large developing countries, which have seen large capital inflows that make their currencies stronger.

The so-called currency wars are likely to feature heavily in discussions among G-20 officials at their meeting here. According to the senior G-20 government official, the draft reaffirms the commitment of all members to abstain from "competitive devaluations" of their currencies.

In recent months, comments from Japanese Prime Minister Shinzo Abe and his aides suggesting they were targeting a specific, weaker exchange rate have irked other G-20 nations.

Mr. Siluanov said recent steps taken by the Bank of Japan will be a major topic at the meeting. He reiterated that G-20 countries are supporting market-defined exchange rates, but said he doesn't think G20 ministers will criticize Japan "harshly."

A senior G-20 official said members are under pressure from host Russia to use "stronger and more specific language" on the need to avoid currency manipulation than that used in previous G-20 meetings, where the final communique simply said that currency policies should be based on market conditions.