Lagarde, with First Deputy Managing Director David Lipton, at news conference: ‘We need action to lift the veil of uncertainty’ (photo: Stephen Jaffe/IMF)
IMF-WORLD BANK ANNUAL MEETINGS
She told reporters at a news conference ahead of the 2012 IMF-World Bank Annual Meetings in Tokyo that many of the right decisions had been taken to secure global recovery, but added that these decisions need to be implemented.
“We need action to lift the veil of uncertainty. Many of us have debated what actions are needed, many of us understand what needs to be done, but it actually needs to happen,” Lagarde said.
“What is most needed is cooperation. The task of securing sustained recovery has become more complex: it involves multiple players, and they are all playing a single game.” Lagarde noted that the world economy is seeing the emergence of new players, as traditional actors take on different roles.
“We really need to go through what needs to be done to make sure that recovery is not just a little bounce but is really here for the longer term and is sustainable’” she said.
Ripple effects
Lagarde noted that the IMF had lowered its forecasts for world economic growth. The biggest change had been development of much larger global ripple effects that spread the slowdown to emerging markets, particularly those in Asia.
Lagarde was speaking to reporters after the IMF’s World Economic Outlook set out a gloomier picture for the global economy than a few months ago, saying prospects have deteriorated further and risks increased. The IMF’s Fiscal Monitor said that in many advanced economies, efforts to reduce debts and deficits will need to persist for many years for debt ratios to return to their pre-crisis levels. And the Global Financial Stability Report said mounting risks and concerns about the euro area are fueling financial instability.
Lagarde said one of the causes of slow global recovery was the degree of uncertainty in many parts of the world. “There is a level of uncertainty which is hampering decision makers from investing and from creating jobs.”
Opportunity for action
Some players had decided to act, however, and this was good news, Lagarde stated. Central banks had given good, strong policy signals lately. “That creates momentum that should be seized as an opportunity, because in and of itself it will not be sufficient.”
“My message today: countries need to take courageous and cooperative action to spur a lasting recovery,” Lagarde added, saying action was needed in several areas.
• Europe is the epicenter of the crisis and where the most urgent action is needed. Decisions have been made by euro area members on strengthening fiscal discipline, and on European banking supervision.
• The United States faces major risks related to the fiscal cliff and the debt ceiling. As the end of the year approaches, those risks are becoming more threatening.
• Emerging markets need to keep a close watch on vulnerabilities—some from the external side, some domestically driven.
• Low-income countries also remain vulnerable—not least to high food prices as well as to the danger of more people falling back into poverty.
Lagarde said there are four key policy areas where action can anchor the global recovery.
• Complete financial sector reform. “If you ask come of the supervisors around the world whether the financial sector is safer than it was five years ago, many will say ‘No, not yet.’ And I concur with that.”
• Deal with the legacy of high debt. “We need credible medium-term strategies to bring down debt, which today is, in many of the advanced economies, not seen except in war time.
• Support job-rich growth. “The unemployment rates that we see in advanced economies, in particular, and amongst young people, is terrifying and unacceptable. So focus must be on creating the conditions for growth that is more inclusive and, more importantly, likely to create jobs.”
• Face up to the fundamental issue of global imbalances. “This is not going away and needs to be addressed because, when growth picks up, those imbalances are likely to widen again.
Lagarde observed that the IMF had a big agenda of its own as the Annual Meetings get under way, that includes new approaches to lending, surveillance, and technical assistance. There would be active discussions of these issues with the IMF’s 188 member countries during the Meetings, she said.
IMF reforms
Lagarde stressed the importance of ongoing reforms of the IMF’s governance, saying the institution is close to completing the 2010 reform package. Two of three thresholds for adoption have been passed—those on the consents needed for a change in quotas, and on the number of countries needed for reform of the IMF Executive Board.
“These reforms will help the IMF be more representative and more inclusive, and will bring emerging markets into the top ten shareholders of the Fund,” Lagarde stated.
Taking questions from reporters, Lagarde said discussions between the IMF and the Egyptian authorities were due to resume in Cairo this month, and added she was confident that agreement would be reached. Lagarde noted that the IMF staff is in discussions with the Greek authorities to resolve differences to address all the elements of Greece’s IMF-backed program. She also welcomed the launch of the European Stability Mechanism.
Asked about the absence of senior Chinese officials from the Annual Meetings, Lagarde said all economic players and partners in Asia are critical for the global economy.” At the IMF, where we encourage cooperation, where we are a forum for dialogue and improved relationships, we hope that differences, however long standing, can be resolved harmoniously and expeditiously so that from an economic point of view, the cooperation can continue.”
