Economic Policy Cooperation Vital to Global Recovery
IMF Survey online
May 20, 2011
- IMF helps G-20 countries examine each other's policies to boost growth
- Acid test for policy cooperation as leaders meet in November
- IMF studies how 5 biggest economies policies affect each other
Advanced and emerging market economies stand to benefit from a stronger economic recovery if they cooperate in setting their basic economic policy plans, said John Lipsky, acting managing director of the International Monetary Fund.
Lipsky, giving the annual Stavros Niarchos Foundation lecture at the Peterson Institute for International Economics—a Washington, D.C-based think tank—said effective policy coordination promises to be a mutually beneficial proposition.
“Policy cooperation is not based on the notion of sacrificing for the general good,” said Lipsky. “The basic premise that if the G-20 members act coherently, they can produce an outcome that is better for each of them.”
Leaders of the Group of Twenty (G-20) advanced and emerging economies have met five times, including the first Leader Summit in November 2008,in order to collaborate on a their policy response to the unfolding economic and financial challenges. While the crisis resulted from failures in both the public and private sectors, the rapid global reaction and policy response is credited with preventing the crisis from becoming substantially more acute. The IMF and the G-20 are working to sustain the recovery, both independently and together.
Lipsky became acting managing director of the IMF after the resignation of Dominique Strauss-Kahn on May 19.
Global crisis, global solutions
At their summit in Pittsburgh, Pennsylvania in September 2009, G-20 leaders created a blueprint for policy cooperation, known as the multilateral assessment process, to help build strong, sustainable and balanced growth.
Countries’ economic conditions have begun to improve after the global economic crisis, but their recovery remains fragile and uneven. This uneven recovery makes policy collaboration more difficult, but no less important.
Lipsky said one of the strengths of the blueprint is that policy plans are being consulted among the G-20 members, and a mechanism is being created for the participating countries to review their partners’ policy implementation and to readjust their action plans according to developments.”
At present, IMF staff—working with the G-20 countries—is analyzing the policies of seven systemic economies whose actions influence global economic imbalances.
The next G-20 leaders’ summit will take place in Cannes, France in November 2011, which Lipsky described as “a key stage in the upcoming acid test for policy cooperation under the mutual assessment process.”
New tools for a new phase of the crisis
The post-crisis global economy is facing new policy challenges, including high unemployment—particularly among young people—along with high and rising levels of public debt, said Lipsky.
New responses are required, given the evolving landscape, and Lipsky outlined the myriad ways in which the IMF is changing along with developments in the global economy and in financial markets, which include
• Mandatory reviews of the top 25 financial sectors
• Spillover Reports on the effects of countries’ policies on each other
• A variety of flexible lending instruments to help prevent crises,
• $300 billion committed to help countries since the beginning of the crisis
• Gold sales to raise funds for more lending to low-income countries
• A shift of 6 percent in quota shares from advanced to emerging economies
The IMF’s spillover reports will examine five systemically important economies—the United States, Japan, the United Kingdom, China, and the Euro area. The IMF has held discussions with their authorities about their views of how they’re affected by the policies of each of the others.
“When we conduct our annual consultation visits to these five systemic economies, we will be able to reflect what their partners think about what they’re doing and how it’s affecting them,” Lipsky said.
Work carries on
Earlier in the day Lipsky addressed the Bretton Woods Committee’s annual meeting, and discussed a range of issues affecting the organization.
Among other topics, he stated that the problems facing several peripheral euro area economies require a solution that is comprehensive and consistent. This will include strengthening the Euro-area’s crisis management framework, accelerating financial sector repair, improving fiscal and economic coordination, and promoting high-quality growth.
In response to a question about how the IMF will carry out its duties, Lipsky was emphatic.
“My management colleagues are immensely talented individuals, our cadre of department heads is, in my opinion, the best this institution has ever had. The staff is highly skilled, dedicated and focused on fulfilling our unique responsibilities. I have no doubt that we can meet all the challenges we are facing at present effectively, efficiently and expeditiously.”