IMF’s warnings on global economy will fall on deaf ears in age of broad-brush solutions
Christine Lagarde, boss of the International Monetary Fund, is expected to deliver a hard-hitting speech at the organisation’s annual meeting this week, urging world leaders to push ahead with reforms to turn the current global economic recovery into something more sustainable.
Lagarde, who is now in her second four-year term as managing director of the Washington-based lender of last resort, will talk about a lack of education, training and productivity. She will, no doubt, develop the argument she put forward in London a fortnight ago that regulators need to be wary of lenders outside the mainstream repeating the same errors as the banks a decade ago.
The need to tame a rapidly growing shadow banking industry will be set alongside concerns about government finances and how those administrations that are awash with cash, like Germany and South Korea, “can use this moment to invest more in their own economies”, to help others with large deficits, as she said last week in a speech at Harvard university.
But who cares what Lagarde says about the future direction of the global economy? As far as the autocratic leaders who fill the UN’s assembly hall are concerned, the IMF served its purpose in the wake of the crash. Now its ideas for greater co-operation, investment and equality are surplus to requirements, like a wool coat in August or a Royal Navy landing ship in a costcutting defence review.
Not only is the IMF seen as a handwringing liberal institution making nuanced and technical suggestions in an age of simpler, broad-brush solutions, it is wedded to a past that both left and right on the political spectrum are beginning to accept will never return.
The normality of galloping productivity gains that lead to improving wage rates, bountiful tax receipts and declining government debts is still a long way off, and – given how much commerce is changing with the growing amount of business conducted over the internet, the rise of artificial intelligence and robotics – may never return.
Not that the IMF is giving up its role as adviser to governments large and small about how they should move forwards. Last week it urged the G20 to focus on “rebalancing and ensuring the sustainability of growth, while finetuning the macroeconomic policy mix”.
Rebalancing refers back to the call for Germany and South Korea to splash some of their spare money on the goods and services of their neighbours. In this way, the balance between debtor and surplus countries would narrow to reduce the risk of another financial crash.
Except that no one is listening to the G20 either. Least of all the G20’s own members, despite their enthusiasm for a group created to rebuild the global economy in the wake of the 2008 financial crash.
Mexico, Australia, Canada and Indonesia are keen to keep the global trading routes open with as few barriers as possible. But the majority of G20 of members are, in different ways, turning in on themselves and of the IMF’s recommendations, the most they can probably manage is the fine-tuning.
China is about to embark of a phase of introspection as the Communist party wrestles with keeping control amid slowing growth. Germany is busy saving for its ageing baby boom- ers, while the Trump administration is busy putting America first, which initially means unwinding its trade agreements.
The fact that the IMF’s global concerns are lost on its most powerful members means that all eyes in Washington next week will be on the real movers and shakers – the central bank governors, who turn up en masse for the IMF bash.
Yet they have, almost in unison, expressed the limitations of their powers in recent weeks, not least the Bank of England governor Mark Carney. He will be in Washington with Lagarde and may hint again about an interest rate rise in November. Yet he is the first to say that a sustainable future is one only politicians can forge.
Lagarde with Bank of England governor Mark Carney in Washington last month.