Jaitley: Emerging markets face risk from advanced economies

Tribune News Service

New Delhi, April 20

Finance Minister Arun Jaitley in his intervention at the G20 meeting in Washington said emerging market economies face a high risk of negative spillovers from unconventional monetary policy actions of advanced economies.

“The growth in some advanced countries has not improved as much as we had anticipated. Emerging market economies face a high risk of negative spillovers from unconventional monetary policy actions of advanced economies. The uncertainties about their extent and eventual normalisation have induced greater volatility and intensified pressures on both emerging market currencies and capital markets,” Jaitley said.

He said some emerging market economies (EMEs) have had to dip into their foreign exchange reserves in order to manage the effects of volatile currency markets and others had to shore them up in the absence of other adequate safety nets.

Given these challenges, he said there was a need for clarity in communications and forward guidance to minimise surprises.

“We need cooperative tools which will create confidence in EME investors and prevent currency crises. As we have seen from the crises of the 90s in East Asia and Latin America, policies which place the burden of tackling the impact of capital flight solely on affected countries, are ineffective. We need to cooperate to cushion the impact of unconventional policies and their normalisation on affected economies which may face a flight of capital shortly similar to that of the taper tantrum of 2013”, Jaitley added.

In his intervention on tax issues, the Finance Minister said Base Erosion and Profit Shifting (BEPS) has been a cause of concern for developing and emerging economies for long as it erodes their tax base depriving them of much needed resources for developmental activities. It is also unfair to the general taxpaying public. It also provides an unfair competitive advantage to Multinational Enterprises (MNEs) vis-à-vis domestic companies which have no opportunities for BEPS strategies.