Remarks by the International Monetary Fund’s First Deputy Managing Director David Lipton

IMF News, June 27, 2016

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Bretton Woods Committee Annual Meeting, Washington, DC.
Date: June 27, 2016.
Delivered by: David Lipton, First Deputy Managing Director, International Monetary Fund.
Contact noted: IMF Communications Department; MEDIA RELATIONS Phone: +1 202 623-7100 Email: MEDIA@IMF.org.

Immediate reaction to the British referendum ("Brexit") and its implications for globalization and multilateralism.
Argument: globalization still has promise, but preserving that promise requires a fresh look at multilateralism and the role of international financial institutions (IFIs).
Emphasis on the continued importance of support from the Bretton Woods Committee (BWC).

European integration referenced as a generational narrative: Coal and Steel Community (1951), the creation of the euro, and re-integration of central and eastern Europe.
Brexit characterized as "at the least, an interruption in that integration process."
Ian Bremmer’s concept of a "G-zero" world invoked: described as a "vacuum of global governance" and the decline of hegemony and traditional security relationships.

Globalization has lifted hundreds of millions out of poverty and raised living standards worldwide.
Despite integration, many people question whether closer global integration brings meaningful benefits; costs and vulnerabilities (economic, social, cultural) can dominate public opinion when benefits are unclear.
Cited economic effects in Advanced Economies: the global financial crisis hit wealth and retirement prospects; growth recovery is still sluggish.
Observed public concerns: income inequality, stagnating wages, lack of job security, and market volatility.
Open macro questions highlighted:
- "Are we in secular stagnation?"
- "Does the trend toward lower real interest rates over the last 15 years reflect a drying up of investment possibilities?"

First: Globalization has lifted hundreds of millions of people out of poverty and raised living standards across the globe; it still holds promise for Advanced Economies and Emerging Markets and Developing Countries, but the gains must be enhanced, costs and vulnerabilities limited, and the case to a skeptical public better made.
Second: Much of what needs to be done requires action at the individual country level. The Fund’s recommended "three prong approach" to boosting growth: support for demand coming from both fiscal and monetary policies, and structural reforms tailored to support demand in the short run and boost potential growth over time. Note: individual governments see limits to their room for maneuver and so far have not made sufficient progress.
Third: Multilateralism is needed now more than ever because national leaders cannot fully solve domestic problems without coordinated global action; IMF should rally membership to act in harmony so that growth is based on demand creation, not demand diversion.

Despite potential to be the engine of growth and to converge toward advanced living standards, a "perverse slowdown in potential growth" is observed in Emerging Markets and Developing Countries.
Present projections imply many large Emerging Markets cannot expect to see convergence at all.
Factors impeding convergence noted:
- Volatility of the global economy.
- Large flows of short term capital prompting defensive actions: guarding against openness, worrying about borrowing and current account deficits, self-insuring with weak currencies and reserve accumulation.

Re-examine the international monetary system to:
- Re-assess how macro prudential and capital flow measures can provide protection.
- Ask how to promote growth-supporting equity flows.
- Better promote technology transfer.
Create a better global financial safety net, including:
- IMF coordination with regional financing arrangements.
- Possibly new IMF lending facilities.
Welcoming cooperation with new multilateral institutions, specifically mentioning the Asian Infrastructure Investment Bank.
Call for "creative, multilateral solutions" that can respond to a rapidly changing world.

IMF as a voice for global cooperation and collective action.
IMF described as "stronger than ever, and better able to deal with economic challenges," crediting BWC support.
IMF’s role includes rallying membership to coordinated action and shaping an international monetary system supportive of individual country efforts.

Growing geo-political risks have adverse impacts on economic growth and stability; more attention needed to the interplay between economics and geopolitics.
Examples where this interplay is already visible: events in the Middle East, Africa, and the refugee issue in Europe.
Final call: continue addressing new challenges with multilateral, creative solutions.

International Monetary Fund. Remarks dated June 27, 2016.