The right choices for 2015

Financial Mirror (Cyprus) - - FRONT PAGE -

As 2015 gets un­der­way, pol­i­cy­mak­ers around the world are faced with three fun­da­men­tal choices: to strive for eco­nomic growth or ac­cept stag­na­tion; to work to im­prove sta­bil­ity or risk suc­cumb­ing to fragility; and to co­op­er­ate or go it alone. The stakes could not be higher; this prom­ises to be a make-or-break year for the global com­mu­nity.

For starters, growth and jobs are needed to support pros­per­ity and so­cial co­he­sion in the wake of the Great Re­ces­sion that be­gan in 2008. Six years after the erup­tion of the fi­nan­cial cri­sis, the re­cov­ery re­mains weak and un­even. Global growth is pro­jected at just 3.3% in 2014 and 3.8% in 2015. Some im­por­tant economies are still fight­ing de­fla­tion. More than 200 mil­lion peo­ple are un­em­ployed. The global econ­omy risks get­ting stuck in a “new medi­ocre” – a pro­longed pe­riod of slow growth and fee­ble job cre­ation.

To break free from stag­na­tion, we need re­newed pol­icy mo­men­tum. If the mea­sures agreed by the lead­ers as­sem­bled at the G-20 in Novem­ber are im­ple­mented, they will lift world GDP by more than 2% by 2018 – the equiv­a­lent of adding $2 tril­lion in global in­come. Fur­ther­more, by 2025, if the laud­able – yet not overly am­bi­tious – goal of clos­ing the gen­der gap by 25% is achieved, 100 mil­lion women could have jobs that they didn’t have be­fore. Global lead­ers have asked the In­ter­na­tional Mon­e­tary Fund to mon­i­tor the im­ple­men­ta­tion of th­ese growth strate­gies. We will do so, coun­try by coun­try, re­form by re­form.

Be­sides struc­tural re­forms, build­ing new mo­men­tum will re­quire pulling all pos­si­ble levers that can support global de­mand. Ac­com­moda­tive mon­e­tary pol­icy will re­main es­sen­tial for as long as growth re­mains ane­mic – though we must pay care­ful at­ten­tion to po­ten­tial spillovers. Fis­cal pol­icy should be fo­cused on pro­mot­ing growth and cre­at­ing jobs, while main­tain­ing medium-term cred­i­bil­ity. And labor­mar­ket poli­cies should con­tinue to em­pha­sise train­ing, af­ford­able child­care, and work­place flex­i­bil­ity.

As we pon­der the sec­ond choice, be­tween

sta­bil­ity and fragility, we must con­sider how we can make our in­creas­ingly in­ter­con­nected world a safer place. Fi­nan­cial in­te­gra­tion has risen ten­fold since World War II. Na­tional economies are so in­ter­con­nected that shifts in mar­ket sen­ti­ment tend to cas­cade glob­ally. It is there­fore crit­i­cal that we com­plete the agenda on fi­nan­cial-sec­tor re­form.

To be sure, there has been progress, es­pe­cially on bank­ing reg­u­la­tion and on ad­dress­ing too-big-to-fail fi­nan­cial in­sti­tu­tions. But coun­tries must now im­ple­ment the re­forms and im­prove the qual­ity of su­per­vi­sion. We also need bet­ter rules for non­banks, stricter mon­i­tor­ing of shadow banks, and im­proved safe­guards and more trans­parency in the de­riv­a­tives mar­kets. Progress on clos­ing data gaps in the fi­nan­cial sec­tor is ur­gently needed as well, so that reg­u­la­tors can prop­erly as­sess risks to fi­nan­cial sta­bil­ity.

Most im­por­tant, the cul­ture of the fi­nan­cial sec­tor needs to change. The prin­ci­pal pur­pose of fi­nance is to pro­vide ser­vices to the other parts of the econ­omy, which it can­not do un­less it en­joys the con­fi­dence of those who de­pend on those ser­vices – that is, all of us. Restor­ing trust should there­fore start with an all-out ef­fort to pro­mote and en­force eth­i­cal be­hav­iour through­out the in­dus­try.

The third choice, whether to co­op­er­ate or go it alone, is the most crit­i­cal. No econ­omy is an is­land; in­deed, the global econ­omy is more in­te­grated than ever be­fore. Con­sider this: Fifty years ago, emerg­ing mar­kets and de­vel­op­ing economies ac­counted for about a quar­ter of world GDP. To­day, they gen­er­ate half of global in­come, a share that will con­tinue to rise. But sov­er­eign states are no longer the only ac­tors on the scene. A global net­work of new stake­hold­ers has emerged, in­clud­ing NGOs and cit­i­zen ac­tivists – of­ten em­pow­ered by so­cial me­dia. This new re­al­ity de­mands a new re­sponse. We will need to up­date, adapt, and deepen our meth­ods of work­ing to­gether.

This can be done by build­ing on ef­fec­tive in­sti­tu­tions of co­op­er­a­tion that al­ready ex­ist. In­sti­tu­tions like the IMF should be made even more rep­re­sen­ta­tive in light of the dy­namic shifts tak­ing place in the global econ­omy. The new net­works of in­flu­ence should be em­braced and given space in the twenty-first cen­tury ar­chi­tec­ture of global gov­er­nance. This is what I have called the “new mul­ti­lat­er­al­ism.” I be­lieve it is the only way to ad­dress the chal­lenges that the global com­mu­nity faces.

The year 2014 was a tough one. The re­cov­ery was slow, a se­ries of dan­ger­ous geopo­lit­i­cal risks emerged, and the world was con­fronted with a dev­as­tat­ing Ebola out­break. Next year may be another tough one, but it could also be a good one – a truly mul­ti­lat­eral year.

New mo­men­tum on global trade could help un­lock in­vest­ment world­wide, and I am hope­ful about the new Sus­tain­able De­vel­op­ment Goals (which will suc­ceed the Mil­len­nium De­vel­op­ment Goals in 2015), and about the prospects for a com­pre­hen­sive cli­mate-change agree­ment at the end of next year.

Against this back­drop, the adop­tion of the IMF re­forms by the United States Congress would send a long-over­due sig­nal to rapidly grow­ing emerg­ing economies that the world counts on their voices, and their re­sources, to find global so­lu­tions to global prob­lems.

Growth, trade, de­vel­op­ment, and cli­mate change: 2015 will be a ren­dezvous of im­por­tant mul­ti­lat­eral ini­tia­tives. We can­not af­ford to see them fail. Let us make the right choices.

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