IMF urges more effort on global trading
washington — IMF managing director Christine Lagarde urged global leaders on Wednesday not to reject international trade as policy shifts by Washington and London force resets on major global commercial treaties.
Lagarde admitted that the rapid lowering of trade barriers in recent decades had caused significant dislocation, including job losses, downward pressure on wages and higher inequality in both developing and advanced economies.
“The best policy response to all these challenges is not to turn our back on trade,” Lagarde told a conference on globalisation in Washington. “Instead, we need to redouble our efforts to create a more inclusive global trading system that works for all.”
Speaking ahead of the annual International Monetary Fund and World Bank meetings on the global economy, Lagarde did not single out the views of any specific countries or leaders on trade.
But her remarks followed a year in which Britain acted to withdraw from the European Union and US President Donald Trump killed the nascent Trans Pacific Partnership treaty and ended talks on the ambitious Transatlantic Trade and Investment Partnership that were initiated by his predecessor Barack Obama.
Trump has also forced a renegotiation of the North American Free Trade Association with partners Mexico and Canada. A new round of talks on redoing NAFTA began Wednesday, with Washington pressing its partners for more benefits for US workers from the treaty. Lagarde said that with stronger global economic growth, governments now have an opportunity to secure the benefits of international trade. Globalisation “has fostered a sharp decline in global income inequality — that is inequality between countries,” she said.
“Living standards have been boosted in all countries, including in advanced economies, where consumers and businesses are benefiting from lower prices and a greater variety of goods.” She conceded that there are “negative side-effects” with globalisation, as local industries get hit from competition, with some social upheaval the result.
“Despite these challenges, citizens in emerging economies generally take a more favourable view of trade and its labor market impact,” Lagarde said.
“Why? Because their incomes have been growing, even in the bottom deciles of the income distribution.” For the first time in years the IMF is optimistic about global economic growth. But it sees a new problem: mounting debt in the world’s largest countries.
“Debt levels are increasing in G20 economies,” Tobias Adrian, who heads the IMF’s monetary and capital markets division, said on Wednesday. Among private businesses in those countries, leverage is higher than before the financial crisis. And the weight of debt service has also jumped in several top economies, he noted. With central banks in the United States and Europe expected to tighten monetary conditions, he said, “This poses greater risks over time from sharp increases in interest rates.”
Introducing the IMF’s newest assessment of risk in the world’s financial system, Adrian noted that
Despite these challenges, citizens in emerging economies generally take a more favourable view of trade and its labor market impact Christine Lagarde, Managing Director, IMF
the extremely low interest rates of the past several years have allowed countries to borrow easily to finance their rebound from recessions. And recovery is not yet complete, he noted, saying low rates are still needed.
At the same time, he said, “this environment is breeding complacency,” with risks building on several fronts. That is true especially for the superstars of the emerging economies like China, Brazil, and Turkey. China continues to fund growth with the expansion of credit, he noted, particularly “shadow” credit — lending outside the regulated banking system.
Another side of the problem is the dependence of emerging market and lower-income economies on external funding, especially portfolio investment inflows. Around $300 billion in such funds will flow into these countries in 2017, supporting their growth.
“This is broadly good news,” said Adrian. “But this greater reliance on foreign borrowing may at some point become a vulnerability, particularly for low-income countries, if those resources are not put to good use.” — AFP