2011—A Pivotal Year for Global Cooperation
IMF Blog, January 4, 2011
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- Authors: John Lipsky
- Published: January 4, 2011
Key premise
- 2011 represents a pivotal year for the global economic recovery and for international policy cooperation—as well as for the role of the Fund in addressing these two principal challenges.
- With the crisis of 2008-09 receding, and following the unprecedented efforts expended in 2010 developing the outlines of a new, post-crisis world, 2011 will be the year in which post-crisis plans will be implemented, tested, and assessed.
- Success would signal a new model for global economic and financial governance; failure would undermine confidence and add to the list of challenges.
2010 — a year of accomplishments
- Global economic growth staged a clear-cut recovery.
- Last year’s estimated 5 percent annual global growth was above the 3.6 percent average rate of the previous decade.
- Financial sector reform efforts began to bear fruit.
- Significant reforms were agreed for the international financial institutions (IFIs), including the International Monetary Fund.
- The Leaders' process at the Group of Twenty (G-20) began to assume a sustained and sustainable form.
- Remaining gaps: none of the five key challenges described a year earlier—securing the recovery; protecting the poor from the impact of the crisis; reforming the financial sector; restructuring and reforming the IFIs; reassessing the theoretical underpinnings of prevailing economic and financial policies—has been met fully.
- New challenges have emerged that will require urgent attention.
Global outlook (as 2011 begins)
- Overall outlook: promising, but with an uneven pattern of recovery.
- Pattern: rapid emerging economy growth combined with only trend-like growth in the advanced economies.
- Advanced-economy constraints listed:
- High unemployment.
- Weakened household balance sheets.
- Sluggish income gains.
- A still-healing financial sector.
- G-7 performance note: as of 2010’s third quarter, only Canada among the G-7 economies had matched its pre-crisis output peak.
- Current account imbalances: no important progress expected in reducing large current account imbalances assuming current policies are maintained.
- Downside risks (three highlighted):
- Renewed turbulence in sovereign debt markets could spill over to the real economy and across regions; investor sentiment in Europe is particularly precarious.
- Failure to reduce high unemployment—coupled with downside risks for housing markets in several advanced economies—could undermine consumer confidence, slowing consumer spending and weakening the global growth outlook.
- The emergence of above-trend growth, rising asset prices, and accelerating inflation in several emerging economies is sparking worries about potential overheating, as well as about difficulties in coping with growing capital inflows and strengthening currencies.
- Implication: substantial policy shifts and enhanced global economic and financial policy cooperation are needed to secure strong, sustainable, and balanced global growth.
- IMF role: increased importance and responsibilities for the Fund in meeting new and expanded demands.
Consolidating cooperation — the G-20 and the MAP
- G-20 Leaders' process: developed since late 2008 to improve global cooperation on economic and financial policies; each of the five Leaders' Summits produced agreements to broaden and deepen cooperation.
- Post-crisis phase: policy coherence demands differing policy prescriptions across economies due to disparate circumstances.
- Mutual Assessment Process (MAP):
- Ratified as an ongoing initiative at the Seoul Summit.
- To be guided by an agreed set of “indicative guidelines.”
- Progress toward the goals of strong sustainable and balanced global growth to be assessed at an individual economy level and reviewed by Leaders at their next Summit.
- The Seoul Leaders’ Declaration contained a detailed list of each G-20 economy's proposed policy adjustments as part of the MAP.
- MAP challenges:
- No exact precedent for the MAP’s ambition.
- Principal uncertainty: whether the entire G-20 will adhere to a cooperative approach.
- IMF support for the MAP:
- Leaders asked the IMF to “provide an assessment as part of the MAP on the progress toward external sustainability and the consistency of fiscal, monetary, financial sector, structural, exchange rate and other policies.”
- The Fund’s enhanced role increases the importance of producing analysis of the highest technical quality.
Surveillance renaissance — IMF institutional and analytical advances
- 2011 Triennial Surveillance Review will allow members to assess progress and set priorities for the coming triennial period.
- Integration of financial stability assessments into regular country reviews has begun.
- Financial Sector Assessment Programs (FSAPs):
- Will henceforth be mandatory for all Fund members with systemically important financial sectors.
- IMF support for the G-20 MAP will deepen the surveillance dialogue with Fund members.
- New multilateral analytical tools (experimental basis):
- Spillover reports on the wider impact of systemic economies’ policies.
- Cross-country reports on common themes.
- The first such ‘spillover’ assessment is to take place during the coming year.
- Country-specific multilateral reports planned for five systemic economies: China, the Euro area, Japan, the United Kingdom, and the United States; these reports will assess the impact of those economies’ policies on the rest of the world.
- Crisis prevention tools strengthened:
- Reforms of the existing Flexible Credit Line facility.
- Creation of the Precautionary Credit Line.
- Additional work underway to explore further advances in crisis prevention capabilities.
- Ongoing collaboration with the Financial Stability Board on financial sector reform.
Policy implications and action agenda for 2011
- Major economies need significant—and mutually consistent—policy efforts to secure strong, sustainable, and balanced global growth.
- IMF must implement important innovations to meet expanded responsibilities in surveillance, MAP support, and crisis prevention.
- Deliverables for 2011 include:
- Implementation and assessment of post-crisis plans.
- Production of high-quality analysis to support the MAP and surveillance mandates.
- Completion of the Triennial Surveillance Review and rollout of new multilateral tools and spillover reports.
- Operationalization of strengthened crisis prevention instruments (Flexible Credit Line reforms and Precautionary Credit Line).
Closing assessment
- Grounds for cautious optimism are solid, but challenges are formidable.
- 2011 is framed as a pivotal year requiring focused action: “The New Year has arrived; it’s time to get to work.”
Source: John Lipsky, January 4, 2011 — “2011—A Pivotal Year for Global Cooperation”
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