Lagarde urges balance between growth, trade
International Monetary Fund (IMF) Managing Director Christine Lagarde called for global efforts to boost growth while guarding against protectionism.
She was speaking on Wednesday morning at the Kellogg School of Management at the Northwestern University outside Chicago on the health of the global economy.
The fifth most powerful woman in the world, according to Forbes magazine, talked about the fast change in the world over the past two decades, citing the fact that the emerging and developing countries, home to 85 percent of the world’s population, have witnessed more progress for more people than at any time in history, from life expectancy to school enrollment.
“A good deal of this development is due to the success of China, but there has been a broader trend of economic convergence between the poor and the rich nations — not as fast as it should be, but a trend nevertheless,” she said.
Lagarde described the prospects of the emerging and developing economies as meriting some “guarded optimism”, saying these countries will continue to contribute more than three-quarters of total global growth this year and next after driving the global recovery since the 2008 financial crisis.
“China is rightly rebalancing from manufacturing to services, from investment to consumption, and from exports to domestic services — which should produce a more sustainable, albeit slower growing economic model. Even so, it will continue to grow at a robust rate of about 6 percent,” she said.
The words are likely to offer some assurance about the Chinese economy, where the Bank for International Settlements, an international watchdog, warned last week about a crisis in the banking system due to the excesses in credit.
Lagarde said the US economy has been recovering for some time but had a setback in the first half of 2016, which will lead to a downgrade in the IMF’s US forecast.
She said there are good reasons to be optimistic about the future. “And yet, the mood in an important part of the world — the one we call the advanced economies — has shifted in the opposite direction,” said Lagarde, who started her second five-year term in July.
She acknowledged the rising economic inequality in many countries and the fact that real incomes for many in the advanced world have been declining, saying it means that governments must work harder to make growth inclusive.
“Of course, the solution to making people better off is not to fall back on protectionism or other failed economic recipes of the past,” she said. without saying if she means the strong protectionism and anti-trade sentiment in the US and some European countries.
US presidential candidates Donald Trump and Hillary Clinton both reiterated their opposition to the Trans-Pacific Partnership (TPP) among the US and 11 Pacific Rim nations during their first debate on Monday.
US Secretary of State John Kerry argued for the TPP on Wednesday at the Wilson Center. His argument focused mostly on the geopolitical and national security aspects rather than addressing the widespread concerns about how the federal government will help workers and communities hurt by trade deals.
Kerry’s talk was one of the many given by top US officials these days to make a last-ditch effort to lobby the Congress to ratify the TPP during the lame-duck session later this year. The prospect for passage has been regarded by most trade experts as a long shot.
The Council on Foreign Relations (CFR) published a report titled A Winning Trade Policy for the United States on Tuesday.
Edward Alden, senior fellow at the CFR and coauthor of the paper, said the report recommends that Congress put in place a program of “livelihood insurance” to help established workers who have lost their jobs or suffered a serious loss in income due to changes brought about by trade, technology, or simply by changing consumer preferences.
Lagarde called on nations to maintain economic openness and to do no harm to the still fragile global economy.
“Restricting trade and limiting economic openness is sure to worsen the growth outlook for the world and especially its weakest citizens. But we need to rethink fundamentally how growth can be made more inclusive, and act accordingly,” she said.
She also urged nations to use monetary, fiscal and structural policies in concert.