Plato & the Incas: Overheard at the IMF’s Annual Meetings

IMF Blog, October 15, 2015

Source details

Publication: iMFdirect
Date: October 15, 2015
Setting: Summaries of seminars held during the IMF’s Annual Meetings in Lima, Peru.
Editors’ approach: Notes and highlights from multiple seminars, emphasizing substantive themes and policy discussion.

Key observation: Trouble in emerging markets, a lack of investment, and an uneven global economic recovery weigh on the prospects for growth.
Financial inclusion as a growth driver:
- “Countries with commitments to financial inclusion have economies that have grown stronger than those who haven’t,” said Alfred Hannig, Executive Director of the Alliance for Financial Inclusion.
- Empirical finding cited: Countries with financial inclusion targets have grown 13.4 percent between 2011 and 2014, compared to 8.5 percent for those without.
- Definition expanded: Financial inclusion now includes payments, savings, and investment in addition to credit.
Risks highlighted:
- Financial inclusion can entail financial risks if credit grows too quickly and new lenders are not properly supervised.
Structural reforms:
- Structural reforms (deregulation, education investment, etc.) can both boost growth and reduce inequality with appropriate political and policy choices.
- Strong, transparent, and accountable economic institutions are essential to manage global economic volatility and new policy frontiers.
- Capacity building and training are central, particularly in Latin America and the Caribbean.
Commodity price volatility:
- Volatile commodity prices (oil and metals) complicate growth and fiscal policy.
- Policy implication: Save in boom years to spend in bust years.

Core theme: Policy choices to address climate change, energy pricing, and energy subsidies are pressing and country-specific.
Leadership message: IMF Managing Director Christine Lagarde emphasized collective responsibility in addressing climate change.
Policy pressure: Advanced economies may not be taking full advantage of low oil prices to reform energy prices and subsidies.
Direct exhortation: “Finance Minister, go home, price it right, tax it smart, do it now,” said Lagarde.
Framing: Energy price design must reconcile climate objectives and domestic policy realities.

Central banking debate:
- Central bankers reflected on lessons learned and uncertainties about the duration of low interest rates in advanced economies.
- Debate over policy focus: How much to prioritize price stability versus broadening focus to systemic financial risks.
- The case for using monetary policy to contain risks to financial stability—“leaning against the wind”—remains contested, with views ranging from supportive to skeptical to seeing it as a last line of defense.
Interaction between inclusion and stability:
- Evidence presented that financial inclusion has a positive impact on growth but may negatively affect financial stability if growth in credit is rapid and supervision is weak.
- New technology expands services and products but introduces new risks.
- Regulatory approach advocated: “Let a variety of players enter, and ban only those we are certain will do harm,” said Raghuram Rajan, Governor of the Reserve Bank of India.

Plato’s framing: Knowledge requires giving an account rather than mere opinion; seminars would have made Plato proud.
Christine Lagarde on climate urgency: “If we chicken out of this we'll all turn into chickens and will be fried, grilled, toasted and roasted.”
Historical note: There is evidence that the once long-prosperous and productive Inca economy had no market system and no money.

Written by: Jacqueline Deslauriers. Contributors: Jacqueline Deslauriers, Lika Gueye, Julia Gutierrez, and Peter Kunzel.