The Group of 20 finance ministers and central bankers meeting is a precursor to the main G-20 summit that will be held in the Australian city of Brisbane in November. The meeting's host, Australian Treasurer Joe Hockey, said the Federal Reserve's decision to begin scaling back its stimulus will be a key part of discussions, along with reinvigorating global growth.
In December, the U.S. central bank said it would start reducing its monthly Treasury and mortgage bond purchases, intended to keep interest rates low and support economic recovery in the aftermath of the global recession. Investors responded by pulling out of emerging markets and funneling their money to the U.S. in hopes of higher returns, which contributed to sharp falls in stock markets and the currencies of some developing countries.
The G-20, which represents around 85 per cent of the global economy, is made up of both wealthy nations and emerging economies from the United States to Saudi Arabia and China.
In a paper prepared for this weekend's meeting, the International Monetary Fund warned advanced economies to avoid prematurely rolling back their stimulus programs. But Hockey has defended the Fed's decision, saying the U.S. has a responsibility to do what is best for itself.
"There is no doubt that the Fed needs to be aware of these international implications in detail, and be mindful of them," the Australian treasurer said Thursday during an Institute of International Finance conference in Sydney. "But ultimately, the Federal Reserve has to operate in a manner that is consistent with its domestic mandate."
Federal Reserve Board Chair Janet Yellen, who was sworn in Feb. 3 to succeed Ben Bernanke, will travel to Sydney to attend her first G-20 meeting as head of the U.S. central bank. In her first public comments since taking the job, she said the Fed would take "further measured steps" to reduce its bond buying if the U.S. economy continues to improve.
The key focus of the meeting, however, will be exploring ways to restore global growth amid indications that the world's largest economies are once again slowing. Hockey, who says boosting private investment in infrastructure would help stimulate growth, wants G-20 leaders to commit to a global growth target higher than the International Monetary Fund's forecast, which is 3.7 per cent this year.
In a letter to G-20 members obtained by The Associated Press, U.S. Treasury Secretary Jacob Lew said boosting global growth and creating more jobs will be the G-20's top priority. Lew is attending the meeting and plans to meet with Hockey and finance ministers for Germany, Japan, Brazil and Turkey.
"Despite signs of improvement, global growth remains uneven and well below potential, while unemployment remains stubbornly high in many places," Lew told reporters in Sydney on Friday. "The growth strategies that we will be developing must be ambitious in substance and address both deficiencies in near-term demand as well as longer-term economic challenges."
Another key item will be the failure of the U.S. to pass the 2010 IMF reform package. Last month, Congress rejected a funding request from the Obama administration that would have doubled the IMF's lending capacity to about $733 billion and increased the voting power of emerging economies.
"To secure global economic stability into the future, the United States must support IMF reform now," Hockey said earlier this month in a speech to the Lowy Institute, a Sydney-based foreign policy think-tank . "As a longstanding friend of the United States, we can say emphatically that this reform is very much in the interests of the United States as well as that of its friends."
The international lending agency's governing board gave a green-light to the overhaul in 2010, and approval by Congress is the last remaining roadblock for it to take effect. Lew has vowed to get the reform approved, saying last month "we will get it done."
The G-20 members are Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, South Korea, Russia, Saudi Arabia, South Africa, Turkey, the U.S. and the European Union.
Associated Press Economics Writer Martin Crutsinger in Washington contributed to this report.