La­garde calls for force­ful re­form

China Daily (USA) - - ACROSS AMERICA - By CHEN WEIHUA in Wash­ing­ton chen­wei­hua@chi­nadai­

International Mone­tary Fund chief Chris­tine La­garde called on Thurs­day for stronger poli­cies to avoid the low­growth trap, be­fore em­bark­ing on her trip to China for the G20 Lead­ers Sum­mit.

The G20 Sum­mit, to be held in east­ern China’s city of Hangzhou on Sept 4-5, is aimed at find­ing ways to boost global eco­nomic growth.

La­garde said low growth, high in­equal­ity and slow progress on struc­tural re­forms are among the key is­sues that G20 lead­ers will dis­cuss at the gath­er­ing.

“This meet­ing comes at an im­por­tant mo­ment for the global econ­omy. The po­lit­i­cal pen­du­lum threat­ens to swing against eco­nomic open­ness, and with­out force­ful pol­icy ac­tions, the world could suf­fer from dis­ap­point­ing growth for a long time,” she said in an ar­ti­cle dated Sept 1 but re­leased to the press on Wed­nes­day un­der em­bargo.

The year 2016 will be the fifth con­sec­u­tive year that global GDP growth has fallen be­low its long-term av­er­age of 3.7 per­cent (1990-2007), and 2017 may well be the sixth, ac­cord­ing to La­garde.

“Not since the early 1990s, when rip­ple ef­fects from eco­nomic tran­si­tion caused growth to slow, has the world econ­omy been so weak for such a long time,” she said.

De­vel­op­ments within emerg­ing economies are quite di­verse. In 2015, GDP in two of the four largest emerg­ing economies, China and In­dia, grew be­tween 7-and-7.5 per­cent, while GDP con­tracted by close to 4 per­cent in the other two, Rus­sia and Brazil.

Fac­tors con­tribut­ing to China’s slow­down in­clude the re­bal­anc­ing of the Chi­nese econ­omy from in­vest­ment to con­sump­tion, and from ex­ter­nal de­mand to do­mes­tic de­mand, La­garde said.

“While a sta­ble Chi­nese econ­omy grow­ing at sus­tain­able rates is ul­ti­mately good for the world econ­omy, the tran­si­tion is costly for trad­ing part­ners that rely on Chi­nese de­mand for their ex­ports,” she said.

“It can also trig­ger bouts of fi­nan­cial volatil­ity along the way,” she added.

La­garde noted that the large de­cline in com­mod­ity prices has taken a toll on dis­pos­able in­come for many com­mod­ity ex­porters.

She noted that emerg­ing economies have been slow­ing, but from an ex­cep­tion­ally fast pace of growth in the past decade.

“Their slow­down is there­fore more a re­turn to the his­tor­i­cal norm,” said the 60-yearold French na­tional, who took the IMF helm in July 2011 and be­gan her sec­ond five-year term on July 5.

The real growth in ad­vanced economies, ac­cord­ing to the IMF, is run­ning al­most a full per­cent­age point be­low the av­er­age of 1990-2007. Many are still plagued by cri­sis lega­cies, such as stub­born weak de­mand.

“The longer de­mand weak­ness lasts, the more it threat­ens to harm long-term growth as firms re­duce pro­duc­tion ca­pac­ity and un­em­ployed work­ers are leav­ing the la­bor force and crit­i­cal skills are erod­ing,” said La­garde, who also warned against the grow­ing in­come gap in de­vel­oped and de­vel­op­ing coun­tries.

“Force­ful pol­icy ac­tions are needed to avoid what I fear could be­come a low-growth trap,” she said.

La­garde be­lieves that fis­cal pol­icy has a larger role to play. “Where there is fis­cal space, record-low in­ter­est rates make for an ex­cel­lent time to boost pub­lic in­vest­ment and up­grade in­fra­struc­ture,” she said.

She also called for struc­tural re­forms. “Coun­tries are not do­ing nearly enough in this area. Two years ago, the mem­bers of the G20 pledged re­forms that would lift their col­lec­tive GDP by an ad­di­tional 2 per­cent over five years. But in the most re­cent as­sess­ment, the mea­sures im­ple­mented to date are worth at most half this amount, so more re­forms are ur­gent,” she said.

La­garde called for rein­vig­o­rat­ing trade by re­duc­ing trade costs and rolling back tem­po­rary trade bar­ri­ers.

Ac­cord­ing to La­garde, stronger so­cial safety nets are needed in many emerg­ing economies.

Chris­tine La­garde, IMF chief

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