Speech: G-20 Seminar on Structural Reforms -- Opening Remarks by Managing Director Christine Lagarde

IMF News, February 26, 2016

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Canonical URL: Speech: G-20 Seminar on Structural Reforms -- Opening Remarks by Managing Director Christine Lagarde

Occasion: G-20 Seminar on Structural Reforms, Shanghai.
Speaker: Christine Lagarde, Managing Director.
Date and place: Shanghai - February 26, 2016.
Framing: Structural reforms as central to recovery, medium-term growth, and longer-term sustainability; urgency given a fragile global recovery and considerable downside risks.

Global growth:
- Activity weakened unexpectedly at the end of last year, prompting the IMF to revise growth downward for this year and beyond.
- Growth in advanced economies remains modest.
- Some large emerging markets are showing signs of distress.
- China’s transition to a more balanced growth model has added to market volatility.
Spillovers:
- Financial market unsettlements depress consumer and investor sentiment.
Imperative:
- Need to boost both economic potential and confidence about the recovery and near-term growth.
- Call for a broad-based policy response that strengthens growth and reduces vulnerabilities.

The IMF was asked by the G-20 to develop guiding principles and priorities for structural reforms from a macroeconomic perspective.
Three economic dimensions identified as particularly important for successful implementation of structural reforms:
- A first dimension is a country’s income level.
- Research finds that for the more advanced economies, reforms that foster technology and innovation may have the greatest pay-off.
- For emerging market economies, strengthening property rights and capital markets may be more relevant.
- A second dimension is the country’s position in the economic cycle.
- Example: fiscal multipliers are larger when economic growth is below potential; in these situations, spending on infrastructure projects—for example, roads and bridges—is likely to have a larger growth pay-off in the near term.
- A third dimension is the country’s space for reform, which takes into account the distance from international best practice as well as the resource envelope available to finance reforms.
Policy choices are also shaped by societal preferences (example: Anglo-Saxon vs Nordic “flexicurity” approaches to employment are both successful but based on very different labor market policies).
Work is ongoing to refine the analysis and make these broad principles more operational.

Combine supply and demand policies:
- Rationale: supply-side reforms can have short-term output costs; complementary demand policies can offset those costs and support employment.
- Example mechanisms:
- Demand policies boost firms’ expectations about future output when labor market reforms lead to job losses.
- Fiscal policy can support workers who get laid off.
- Empirical insight: when policymakers’ commitment to structural reforms is considered strong—e.g., when a “wave” of reforms is adopted—the effect of combined policy action is larger than the sum of its parts.
Urgent actions called for:
- Speed up implementation of structural reforms committed under the G-20 growth initiative.
- All 188 IMF member countries are urged to undertake reforms that hold back their growth momentum and that were discussed in annual Article IV Consultations.
Start-up question acknowledged: each economy is different; priorities depend on country-specific needs and political economy; invest political capital where it makes most sense given the three dimensions.

The IMF’s contributions:
- Surveillance: identifying the most macro-critical structural reforms that support growth and macroeconomic stability.
- Lending programs: focusing on the most macro-critical and feasible reforms within program constraints.
- Capacity building: technical assistance and training, especially in fiscal and financial sector structural reforms; demand for Fund advice in these areas is described as “nothing short of overwhelming.”
Other international partners:
- OECD: noted for the “Going for Growth” framework; reference to its 12th annual report launched today.
- World Bank: provides advice reflecting decades of experience helping developing countries and emerging market economies design and implement structural reforms.
- Specialized organizations: ILO and UNCTAD can support reforms in their areas of expertise.
Collaboration: IMF will work closely with partner institutions to support countries re-charging structural reform programs.

Quoted guidance: Confucius — “When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.”
Call to action:
- Re-invigorate structural reforms across G-20 countries.
- Realize expected pay-offs from structural reforms earlier than initially anticipated due to fragile recovery and downside risks.
- IMF committed to supporting member countries, in coordination with partner institutions.

Opening Remarks by Christine Lagarde, Shanghai - February 26, 2016. IMF COMMUNICATIONS DEPARTMENT.