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

_IMF News, February 26, 2016_

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## Bibliographic details
- Published: February 26, 2016

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### Overview
- 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.

### Context and macroeconomic challenges
- 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.

### Analytical framework and priorities for reform
- 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.

### Policy prescriptions and sequencing
- 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.

### Role of international institutions and cooperation
- 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.

### Political messaging and leadership
- 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.*

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## References

- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
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- [Christine Lagarde](https://www.imf.org/external/np/omd/bios/cl.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp022616_