Lagarde: ‘Our problems may be largely economic, but the solutions are largely political. We need commitment. We need courage’ (IMF photo)
IMF-WORLD BANK ANNUAL MEETINGS
Addressing the opening session of the 2011 IMF–World Bank Annual Meetings in Washington D.C., Lagarde said risks have increased sharply amid a weak and uneven recovery.
“Inclusive, job-creating growth must be our goal. But today, we risk losing the battle for growth,” Lagarde said in her keynote speech. “With dark clouds over Europe, and huge uncertainty in the United States, we risk a collapse in global demand.”
Lagarde was speaking at the formal opening of the Annual Meetings, which comprise events attended by around 10,000 policymakers, private sector and civil society representatives, journalists, and academics. The events also provide an opportunity for economic leaders to consider collective solutions to the major problems confronting the world.
The proceedings followed the release of the IMF’s latest forecasts for global output, its report on world financial markets, and its review of international fiscal policies. The buildup to the Meetings also featured a debate on the world economy in the IMF headquarters building that was globally televised by the British Broadcasting Corporation.
The Meetings were also preceded by release of a communiqué from the Group of Twenty leading advanced and emerging economies, in which they committed to “taking all necessary actions to preserve the stability of banking systems and financial markets as required.” The G-20 pledged to ensure that banks are adequately capitalized and have sufficient access to funding to deal with current risks. The communiqué also said central banks will continue to stand ready to provide liquidity to banks as required, and that monetary policies will maintain price stability and continue to support economic recovery.
Moment of choice
Lagarde said the Meetings took place at a pivotal moment of choice. “Depending on the choice we make today, and in the weeks and months ahead, our collective economic fortunes will advance or fall back.”
Emerging market and low-income countries are doing better, harvesting the fruits of sound policy choices, Lagarde noted. But she added that the global south is not immune to missteps in the global north.
“Let us be frank—the primary burden of responsibility for addressing the current crisis lies with the advanced economies,” she stated.
Lagarde outlined three policy imperatives for the advanced economies.
• Fiscal policy must navigate between undermining credibility and undercutting recovery. Advanced countries need fiscal consolidation as a matter of priority, but, for some, pushing too fast will harm growth and jobs. So the pace must neither be too hesitant nor too hasty. Given that inflation expectations are generally well anchored, monetary policy should remain accommodative. And central banks should stand ready to dive back into unconventional waters as needed—as some have done in recent days.
• Financial sector policies should include strengthening banks’ balance sheets so that they can lend to fuel growth and adequately face uncertain times with confidence. Stronger, consistent, and implementable financial regulation is needed to make the system safer and sounder—to make financial crises less likely, and to make taxpayer bailouts of reckless operators less likely still.
• Structural reforms in product and labor markets must continue in advanced economies, to boost competitiveness and growth, confront vested interests in service sectors, and allow entrepreneurs to flourish and grow and create value.
Social dimension
Lagarde stressed that policymakers should also pay close attention to the social dimension. “Growth alone is not enough. We need growth that supports jobs—we must not lose this generation of young people. We need inclusive growth that benefits the whole of society. We need decent social safety nets.”
Lagarde said the world’s largest economies—United States and the euro zone in particular—have a special responsibility. They had begun the effort and it should be accelerated as a matter of urgency. The United States should reduce its fiscal deficit over the medium and long term, deal urgently with unemployment, and relieve pressure on overly indebted households.
“Europe must deal urgently with the twin problems of sovereign and bank debt, and deal with them together,” Lagarde stated “The countries at the heart of the crisis must implement the programs to which they have committed. And their European partners must do whatever it takes to support them—as they have committed to do.”
Ultimate objective
To achieve the ultimate objective of rebalancing the global economy, however, all countries had to play their part, Lagarde said.
• In many emerging markets, growth has been resilient. But the external surplus countries now need to rely more on domestic demand. Especially in Asia, they need it to generate more inclusive growth—to finish the job started by the historic reduction in poverty over the past few decades.
• The low-income countries also should play a role—to rebuild the policy buffers that have served them well during the crisis, and to invest in growth and employment creation. The international community should help these countries help themselves, including by helping the people facing drought in the Horn of Africa.
• Across the Middle East and North Africa, the Arab Spring provides a historic transformational opportunity: to unlock the full potential of the region and bring about higher and more inclusive growth.
Role of the IMF
Lagarde highlighted the role of the IMF in bringing countries together to reach solutions. With the support of its members, the IMF could do more through
• Economic surveillance, focusing more than ever on the vulnerabilities and spillovers that run through the interconnected world
• Lending, helping to soften the economic and social costs of crises by, for example, allowing low-income countries to protect and increase spending on health and education, and
• Technical assistance and training, assisting in the expansion and modernization of countries’ capacity to serve their citizens.
The 2011 Annual Meetings were taking place at a critical juncture, Lagarde declared. “The need is urgent. The actions I am calling for today are not for the coming years—they are for the coming months.
“Our problems may be largely economic, but the solutions are largely political,” Lagarde stated. “We need commitment. We need courage.”
