Address to Finance Ministers of the Americas and Caribbean, By Dominique Strauss-Kahn, Managing Director, International Monetary Fund
IMF News, May 28, 2010
Source details
- Canonical URL
- Address to Finance Ministers of the Americas and Caribbean, By Dominique Strauss-Kahn, Managing Director, International Monetary Fund
Other formats
Bibliographic details
- Authors: Dominique Strauss-Kahn
- Published: May 28, 2010
Global and regional outlook
- Global growth projections:
- "We now expect global growth to hit 4¼ percent in 2010 and 2011, faster than previously expected."
- Crisis context and recovery:
- Crisis originated in the U.S. housing market, intensified after the collapse of Lehman Brothers.
- Rapid, bold policy responses and unprecedented policy cooperation prevented a second Great Depression.
- Recovery is uneven: advanced economies face a "lukewarm" recovery with high unemployment, lasting banking-sector damage, and weak household balance sheets; emerging markets have a "far more robust" recovery driven by strong internal demand and a rebound in global trade.
- Regional performance (Latin America and the Caribbean):
- Outcomes were uneven across the region: sound-policy countries (e.g., Peru) fared relatively well; Central America recovered more slowly; tourism-dependent Caribbean countries "are still suffering."
- Factors supporting better performance: countercyclical monetary and fiscal policies, flexible exchange rates, significant international reserve buffers, more credible monetary policy, healthy banking systems and corporate sectors.
- Successful countries face new challenges of strong capital inflows and overheating: "they are a victim of their own success."
Key findings and statistics
- Advanced-economy fiscal vulnerability:
- "Public debt is expected to reach a staggering 120 percent of GDP by 2015—about 40 percentage points above pre-crisis levels."
- Social progress example (Peru):
- "The incidence of poverty fell from 55 percent in 2000 to 36 percent in 2008."
- Policy space and buffers:
- Many Latin American countries had saved for a rainy day and were able to use fiscal policy to cushion the downturn and support employment.
Policy challenges and recommendations
- Exiting macroeconomic stimulus:
- Balance required: "exit too soon, and you could kill the recovery, exit too late, and you may sow the seeds of the next crisis."
- Advanced economies: implement 2010 fiscal stimulus fully except where financing pressures exist; most advanced economies "should start adjusting in 2011" if recovery proceeds; entitlement reforms that do not affect demand can be implemented sooner.
- Emerging markets (including Latin America and the Caribbean): remove temporary fiscal stimulus as recovery advances; fiscal correction can ease the need for monetary tightening.
- Monetary policy stance:
- In major advanced economies, "monetary tightening can take a back seat to fiscal adjustment" while inflation expectations remain low and well anchored.
- Economies ahead of the recovery curve need more timely monetary action to address overheating risks.
- Managing capital inflows:
- Countries with strong fundamentals will likely see "large and sustained capital inflows."
- A pragmatic mix of tools recommended: exchange rate appreciation, reserve accumulation, tighter fiscal policy, macro-prudential measures.
- Capital controls "can sometimes play a role too, but should not be used to avoid needed adjustment."
- Social policies and labor markets:
- Preserve basic social spending and social safety nets to protect vulnerable groups and support social and political stability.
- Adequate unemployment benefits, education, and training programs can limit social damage from high unemployment.
IMF role, governance, and institutional responses
- IMF crisis response highlights:
- "We dramatically stepped up lending, we revamped our crisis prevention toolkit with the Flexible Credit Line, and we streamlined conditionality."
- Governance reform and global cooperation:
- Need for more representative global governance to enhance legitimacy and effectiveness.
- G-20 coordination during the crisis was a "huge step forward" but still leaves many countries out.
- IMF is reforming governance to "enhance the voice of emerging markets and developing countries."
- Emphasis on partnerships and cooperation with regions (example: partnership with Europe) while maintaining consistent lending practices globally: "IMF lending in Europe works just like it would in any part of the world—we do not play favorites."
Conclusion — strategic priorities
- Maintain and reinforce international cooperation to manage complex, cross-border risks.
- Defend macroeconomic stability and rebuild buffers to prepare for future shocks.
- Ensure social progress accompanies macroeconomic policy so growth benefits the many, not just the few.
- The "twinning of macroeconomic stability with social progress" is presented as the recipe to shift the region toward a virtuous cycle of prosperity and stability.
Address to Finance Ministers of the Americas and Caribbean, By Dominique Strauss-Kahn, Managing Director, International Monetary Fund, May 28, 2010.