IMF Survey : More Policy Work Ahead to Avoid Global Crisis Relapse

January 17, 2013

  • Important to follow through on policies, to put uncertainty to rest
  • Finish job of reforming financial sector
  • Shift focus to growth that actually delivers jobs

After avoiding economic collapse following the global financial crisis, policymakers have more work to do to and cannot revert to business as usual, IMF Managing Director Christine Lagarde said.

Lagarde at Washington news conference: ‘We stopped the collapse, we should avoid a relapse, and it’s not time to relax’ (IMF photo)

Lagarde at Washington news conference: ‘We stopped the collapse, we should avoid a relapse, and it’s not time to relax’ (IMF photo)


She told a January 17 news conference at IMF headquarters in Washington that decision makers should focus on the real economy and on growth—“not any growth, but growth that can actually deliver jobs.”

Looking ahead to priorities for 2013, Lagarde said “We stopped the collapse, we should avoid the relapse, and it’s not time to relax.”

She noted that collapse had been avoided in most parts of the world, thanks to policies enacted by central bankers and by governments—particularly in the advanced economies. But she added that there is still a lot of work to be done. Decision makers and authorities cannot relax, assuming that because some recovery is in sight and markets are anticipating good news, that they can slow down and go back to business as usual.

Lagarde called for action in three key areas.

First, follow through on policies to put uncertainty to rest. Removing uncertainty plays a key role in rejuvenating confidence.

• In the euro area progress needs to be made on banking union, and continued monetary easing will be appropriate in order to sustain demand.

• For the United States, all sides should pull together in the national interest, reaching agreement on time on increasing the debt ceiling and on medium-term debt reduction.

Emerging market economies and low-income countries need to grow at a pace that is sustainable and also necessary for the wellbeing of their populations. Although some of these countries are much more vulnerable and open to the risk of spillover effects from the advanced economies, others are more interconnected regionally and less prone to those risks. But they should rebuild their buffers against crisis effects.

Waning commitment

Second, finish the reform of the financial sector. “We recognize that there has been progress, but the process has been very time consuming and continues to contribute to uncertainty. We sense some signs of waning commitment,” Lagarde said. Some reforms are diluted or softened at the margin, or implementation is delayed and there are inconsistencies of approach that lay the ground for possible arbitration. “We believe that it’s important for the regulators, for the supervisors, for the authorities, to resist aggressive industry pushback.”

Key risks include further weakening of capital and liquidity standards; and not enough progress on cross-border resolution and on shadow banking and derivatives. Lagarde said the ultimate goal should be a financial sector that supports growth and the real economy.

Third, focus on the real economy and on growth—“not any growth, but growth that can actually deliver jobs.” Noting that there are 200 million people out of work in the world economy today and that two in five of the jobless are under 24, Lagarde said “We need growth for jobs and jobs for growth. It’s a virtuous circle.”

She called for measures to promote inclusive growth that shares the benefits of expansion among all segments of the population. That means transforming energy subsidies into cash transfers and social safety nets “that are properly targeted to the people that actually need the support, and that are not across the board and generally benefiting anybody—including those that don’t need it at all.”

Lagarde also urged authorities to encourage balanced growth that is more compatible with the sustainability of the environment and with the fight against climate change.

Support for IMF members

Stating that the IMF is stronger, better equipped financially, and has refined its analytical tools, Lagarde said the institution will continue to strengthen its surveillance, especially on spillover effects and on the financial sector. It would also further strengthen its support for the entire spectrum of members through lending, capacity building, training, and technical assistance.

“When you look at the map of the world and see where our teams are, whether it’s in capacity building, in technical assistance, in programs associated or not with financing, we are all over the map,” she stated. She added that the IMF would press ahead with the important and yet not completed reform of quotas and governance.

Responding to questions from reporters, Lagarde welcomed the focus of the Russian authorities’ agenda for the upcoming meetings in Russia of the Group of Twenty advanced and emerging market economies. She said that agenda’s focus on job creation, financial sector reform, and mutual assessment to guide national policies is important and will be supported by the IMF.

Loans to Greece, Portugal

Lagarde noted that the IMF Executive Board had on January 16 approved a €3.24 billion disbursement to Greece under the country's four-year loan arrangement with the IMF, bringing total IMF disbursements under Greece's loan deal to €4.86 billion. She expressed the hope that the Greek people would support the authorities’ efforts to restore growth.

Lagarde welcomed Portugal’s progress in reducing its fiscal deficit, noting that the IMF Executive Board had also on January 16 approved a disbursement of €838.8 million as the next tranche of Portugal’s three-year loan arrangement with the IMF.

Commenting on the IMF’s further research into fiscal multipliers, Lagarde said the IMF does not operate under principles that are set in stone. “The pride of this institution is to constantly question, challenge, revisit, reexamine, and test its findings and assumptions, in order to be as up to date as possible,” Lagarde said.

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