IMF’s warn­ings on global econ­omy will fall on deaf ears in age of broad-brush so­lu­tions

The Observer - - BUSINESS / ANALYSIS -

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.

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