Global economy chiefs told to reform while going is good, prepare for shock
WASHINGTON: Finance chiefs from around the world were warned to get their houses in order while the global economy is strong and to be ready for possible shocks in the future.
World Bank President Jim Yong Kim and International Monetary Fund Managing Director Christine Lagarde said that countries must address their mounting debts and deepening inequalities now, before possible setbacks that could come as the era of cheap money from major central banks nears an end.
That includes reducing sovereign borrowing and dependence on often fickle flows of portfolio capital that have elevated the prices of investment assets like stocks and property.
It also means recognising the potential upheaval that comes with the rapid changes in technology that can quickly turn competitive industries into also-rans in countries trying to move up the economic ladder.
“After several years of disappointing growth, the global economy has begun to accelerate,” Kim said at the opening of the annual IMF-World Bank meetings in Washington.
“Trade is picking up, but investment remains weak. We’re concerned that risks such as a rise in protectionism, policy uncertainty, or possible financial market turbulence could derail this fragile recovery.
“Countries need to build resilience against the overlapping challenges we face today,” he added, pointing to climate change, famine and natural disasters like the hurricanes which have wrecked economies across the Caribbean.
Lagarde said that even though the IMF has just raised its estimates for global economic growth – to a healthy 3.6 per cent this year and 3.7 per cent in 2018 – “it is not time to be complacent.”
“It is time to take those policy decisions that will actually enable more people and more countries to benefit from that recovery that should be made sustainable,” she said.
“That is the question that we will put to the policymakers, the finance ministers, and the governors of central banks who will be attending the meetings.”
Lagarde said that despite the now nearly fully- fledged recovery from the financial crisis that erupted in 2008, 47 countries still experienced negative growth last year, many of them small and fragile economies.
She said inequality, the gap between the rich and the poor, was in particular need of tackling.
“Far too many people across all types of economies are seeing their aspirations limited by the impact of technologies and the repercussions of excessive income inequality,” Lagarde said.
As a result, political tensions are spiking and scepticism is rising about the benefits of the kind of globalization and liberalizing trade that the IMF and World Bank support.
One key issue of business during the three days of meetings, which will include a meeting of G20 finance ministers, is a huge capital increase for the World Bank to enhance its development lending.
The G20 will also see a European push to discuss how to tax the international earnings of big tech giants like Google, Apple, Amazon and Facebook.
Worries about geopolitics were an undercurrent of discussions as the annual meeting of economic leaders from around the world convened: North Korea’s nuclear threat, the Middle East conflicts, Britain’s pullout from the European Union, and the newest point of tension; the vote for independence by Spain’s rich Catalonia region.
On Tuesday IMF chief economist Maurice Obstfeld warned of potential “spillovers” in Europe if the two sides cannot smoothly resolve their differences.
US President Donald Trump’s campaign against what he sees as unfair trade agreements was also a key topic.
On Wednesday a new round of talks opened to renegotiate the North American Free Trade Agreement, NAFTA, with Trump warning partners Canada and Mexico that talks could fail.
Indonesia’s Finance Minister Sri Mulyani Indrawati said antitrade forces were “worrying” for developing countries.
Trade is “actually very powerful in reducing poverty,” she said.
It “can transform low income to middle income to rich countries.” Lagarde also pushed for more efforts to reduce inequality.
“The most efficient way to reduce the inequalities would be to actually close the gender gap between men and women.