While the ‘Currency War’ debate headlined the agenda at the G20 Summit, financial leaders in Moscow failed to reach a debt agreement, but managed to outline plans to crack down on corporate tax loopholes.
Currency manipulations, dubbed as ‘currency wars’ dominated conversation at the G20 conference. Though Friday’s program was set to target austerity and economic stabilization strategies, it derailed with ‘overblown’ talks of currency manipulation.
“We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes,” announced top finance officials after late night discussions.
“Currencies should not be a tool for competitive devaluation,” stressed British chancellor George Osborne.
The Japanese Yen and Chinese Yuan have recently come under fire for intentionally reducing value in order to gain a market advantage. The Yen has dropped over 7 percent under Abe Shinzo’s aggressive monetary and fiscal policies to battle deflation, Bloomberg reports.
In a joint statement, leaders reinforced their opposition to such tactics, and echoed the G7 – which includes Japan – statement issued earlier this week declaring their commitment to “market-determined exchange rates“.
European countries and the US worry that devaluations of currencies like the yen will make their exports less competitive and impede economic recovery at home.
On the other hand, the projected goal of striking an agreement on budget deficit levels was left up in the air. The Toronto 2010 G20 summit resolved to cut annual budget deficits in half by 2013 and this pact expires in September.
Russia’s Finance Minister Anton Siluanov is confident the G20 will have reached an agreement by that time, while forum host Vladimir Putin expressed hopes Moscow can serve as a model for other debt-stricken nations.
Russia has one of the world’s lowest state debt levels… and the country’s lowest inflation rate for the past 15-20 years. We hope we’ll continue this strategy this year and in the medium term. We’ll abide by a very weighted and responsible conservative approach to state finances,” Putin said.
The debt-deficit limit was set up after Greece, Portugal, Ireland, Spain, and Cyprus required Eurozone assistance dealing with their overblown budget deficits. All the five countries (and Italy could very well be on the heel of this trend) tapped into the Eurozone’s monetary rescue fund.
Eliminating tax havens and loopholes
Meanwhile, British, French, and German finance ministers led the crusade against tax-avoidance at the forum.
The cash-strapped European heavyweights have joined forces to ensure big business pays their fair share in taxes. As the recession drags on, Finance Ministers have ramped up efforts to abolish tax havens such as Bahamas, Cyprus, Monaco, Bermuda, British Virgin Islands, and the Cayman Islands.
The campaign is being backed by the Organisation for Cooperation and Economic Development (OECD) which is working together with European governments to crack down on companies that exploit tax structures for profit.
“We want businesses to pay the taxes that we set in our countries. And that cannot be achieved by one country alone,” George Osborne, UK finance minister, said pointing out that companies that transfer profits internationally to avoid higher taxes will be more heavily scrutinized.
Amazon, Google, Starbucks, Google raked in billions of profits, but have paid miniscule amounts in taxes. In Britain last year, Starbucks paid just $13.8 million in corporate taxes.
“We are determined to develop measures to address base erosion and profit shifting, take the necessary collective action and look forward to the comprehensive action plan the OECD will present to us in July,” the summit communiqué reported.
Russia is the 2013 G20 chair, and the Leader’s Summit will be held in St. Petersburg on September 5-6, 2013. The G20 is a forum of the world’s largest economies that was established after the 2008 economic crisis. Russia’s agenda for the summit is international financial reform, world trade, investment, energy, and job creation.