Socrates & the Pope: Overheard at the IMF’s Spring Meetings

IMF Blog, April 14, 2014

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Published: April 14, 2014

Monetary policy

Context: seminars at the IMF’s Spring Meetings focused on boosting high-quality growth with a medium-term emphasis; monetary policy exit and rising interest rates were major concerns.
Live poll result: 63 percent said the global economy remains weak and unconventional monetary policies should remain in place.
Risks and views:
- Charles Evans (President, Federal Reserve Bank of Chicago): “One of the big risks is that we withdraw our accommodative policies prematurely.” Evans emphasized that inflation around the world is low and called that “a sign of weakness” and “a sign of risk.”
- Axel Weber (Chairman, UBS): argued the global economy is returning to normal and higher returns in more advanced economy markets lead to a reversal of capital flows, creating volatility for emerging markets: “So get used to the new normal.”
Seminar focus: challenges for policymakers as central banks slowly exit unconventional monetary policy and interest rates begin rising.

Emerging economies

Concerns about spillovers from advanced-economy monetary policy:
- Raghuram Rajan (Reserve Bank of India): the U.S. Federal Reserve should consider the impact on other countries of its plan to gradually taper quantitative easing; “Sensitivity to conditions in emerging markets while exiting would be useful.”
- Live poll result during an emerging-markets panel: 56 percent said domestic factors are key to growth in emerging market economies.
- Another live poll during a different seminar: 70 percent said the U.S. should take into account the impact of its policies on other countries.
Policy tools and preparedness:
- Rodrigo Vergara (Central Bank of Chile): stressed the importance of sound fiscal policy, deep markets, and deep institutions; warned that pension funds and similar initiatives require sound fiscal foundations.
- Adair Turner (former chair, U.K.’s Financial Services Authority): advocated macroprudential policy to guard against capital flow impacts: “You can’t ask advanced economies central banks to put on a global hat.”
Other perspectives:
- Liaquat Ahamed (author): the Fed has a key role in resolving liquidity crises (as in 2008) but should not run day-to-day policy to avoid spillovers.
- Country-specific risk: Rodrigo Vergara noted “The main risk for Chile isn’t taper, it’s China,” adding that Chile’s trading relationship and China’s credit surge (credit has gone from 120 % to 180 %) raises financial crisis concerns.
- Gillian Tett praised the Global Financial Stability Report chapter on emerging economies for strong and “scary” statistics and graphs.

Growth & structural reforms

IMF head Christine Lagarde (conversation with Charlie Rose): policymakers’ concerns shifting from crisis recovery to creating durable and sustainable growth.
Recommended areas for reform to support sustainable growth: labor markets, infrastructure, and other structural reforms.
Additional coverage: seminars on Africa, the Middle East, and the IMF’s turning 70 this year were available to watch online.

Inequality

Recognition: rising income inequality is acknowledged as a critical economic and social issue.
Institutional voices:
- Christine Lagarde and Olivier Blanchard (IMF chief economist) are addressing inequality; the IMF has new research on redistributive policies and the potential trade-off between redistribution and growth.
- Winnie Byanyima (head, Oxfam International): argued inequality “is morally wrong…it is a real threat to democracy.”
Observations on consensus and moral framing:
- Noted convergence: “A consensus has emerged. The IMF says more equality brings more growth. The World Bank says the same. Obama says he cares about inequality. Even God is on our side. Look at what the Pope said.”
Core question posed: what policies will be implemented to address inequality?

Contributors: Gita Bhatt, Maureen Burke, Jacqueline Deslauriers, Glenn Gottselig, Lika Gueye, Hyun-Sung Kang — Socrates & the Pope: Overheard at the IMF’s Spring Meetings, April 14, 2014