## Partnership & Recovery - The Shared Path to Global Stability & Growth, Nikkei Symposium Keynote Speech by By Christine Lagarde, Managing Director of the International Monetary Fund

_IMF News, July 6, 2012_

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## Bibliographic details
- Authors: Christine Lagarde
- Published: July 6, 2012

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### I. The Main Economic Challenges of our day
- Occasion and context
  - Nikkei Symposium Keynote Speech by Christine Lagarde, Tokyo, Friday July 6, 2012. As prepared for delivery.
  - Marks sixty years of Japan’s partnership with the International Monetary Fund.
- Current global outlook and risks
  - Recent months: outlook has become more worrisome; indicators of economic activity—investment, employment, manufacturing—have deteriorated across advanced and key emerging markets including Brazil, China, India.
  - IMF updated assessment of the world economy to be released ten days from now: global growth outlook will be somewhat less than anticipated three months ago, and that lower projection will depend on the right policy actions being taken.
- Global nature of the crisis and regional spillovers
  - The crisis “does not recognize borders” and poses risks in Europe, the United States, Asia, and Japan.
  - Since 2008, Asia has contributed more than half of total global economic growth.
  - Visible spillovers to Asia: lower stock prices, capital outflows, higher spreads.
- Specific risks for Japan
  - Upward pressure on the yen from a continued flight to safety threatens Japanese growth.
  - A deeper crisis in Europe would take its toll on Japan’s growth due to a large share of exports destined for Europe.

### II. Solutions Through International Cooperation & Partnership
- Principle
  - Effective solutions must be grounded in cooperation and coordinated policy action.
- Quantified potential benefits of coordination
  - IMF research indicates a coordinated strengthening of policies across the G-20 countries could raise global GDP by 7 percent, and boost jobs by 36 million over the medium term—at a time when global unemployment has reached crisis proportions.
- Role of the IMF
  - Lay out interconnections between countries and conduct “spillover” analysis to show how policies in one country affect others.
- Recent examples of coordination
  - Europe: ECB steps to ease bank funding pressures; expanded European financial safety net; last week’s European Summit establishing the first building block of a banking union—a unified supervisory framework.
  - Asia: decision to double the size of the Chiang Mai Initiative Multilateralization and broaden its use for crisis prevention.
- Three chains to break for recovery
  - First, restoring sovereign strength
    - Countries must deal decisively with public debt; deficit reduction is essential.
    - For those facing market pressure, adjustment must occur now; for others, adjustment can be more gradual but must not undermine recovery.
    - The United States must avoid the ‘fiscal cliff’—the expiring tax cuts and automatic spending reductions legislated to begin next year—which would abruptly shrink the budget by some 4 percent and jeopardize the US and global recovery.
    - Fiscal cooperation in Europe must reach new heights.
    - Credible medium-term commitments to reduce public debt are a priority for the US, Europe, and Japan.
    - Recent passage of the consumption tax bill by Japan’s Lower House is a very positive step and critical that it be implemented as planned.
  - Second, repairing and reforming the financial sector
    - Goals: better regulation, stronger supervision, proper incentives for the private sector, coordinated across institutions, markets, and borders.
    - Progress examples: Basel III agreements; Financial Stability Board steps on systemically important financial institutions and OTC derivatives markets.
    - Asia’s banks: bank balance sheets in Asia are healthier than in many other regions; regional banks have stepped in for the exit of some euro area banks in Asia.
    - Nonetheless, the global financial system is “not yet” safer than pre-Lehman.
  - Third, sustained growth through structural reform
    - G-20 goal: strong, sustainable, and balanced growth that is inclusive and job-creating.
    - Structural reforms across labor, product, and service markets are key; IMF-supported programs include such reforms and dialogue with social partners, including trade unions.
    - Asia’s progress: debt-to-equity ratios have fallen by two-thirds over the past decade, resulting in stronger corporate balance sheets.
    - Rebalancing: lower trade surpluses in some Asian countries are promising, but the crisis-induced rebalancing has not been enough; countries need to strengthen domestic demand.
    - Examples of rebalancing: shift toward consumption-led growth in China; improved conditions for private investment in many ASEAN economies.
    - Inclusive growth measures—more spending on social safety nets, strengthening financial inclusion—can improve quality of life and boost domestic demand.

### III. Japan’s Role in the Global Community
- Domestic challenges and potential
  - Ongoing recovery from the tsunami and an aging population are major challenges.
  - Tremendous growth potential exists, notably from increasing female labor force participation.
  - Increasing participation of well-educated female workers to levels common in most other G-7 countries would increase Japan’s potential output by 25 percent by 2030.
  - Japan’s membership in the Trans-Pacific Partnership will strengthen integration with Asia and catalyze domestic reforms.
- Community spirit and societal response
  - Japanese spirit of ‘kizuna’ demonstrated after the Great East Japan earthquake and tsunami; community response and adaptability noted.
  - Conservation efforts after loss of more than a quarter of the country’s electricity generation helped keep the economy moving.
  - Combined with reconstruction spending, Japan’s economy will turn around.
- Japan’s international contributions and leadership
  - Japan stepped forward in 2008 and again this year as the first to offer loans to boost the IMF’s resources.
  - Japan’s leadership in the recent decision by member countries to increase the IMF’s resources by $456 billion is emphasized as especially important.
  - Japan has been a generous and consistent supporter of the IMF:
    - Contributed more than any other country to the IMF’s concessional lending to the poorest countries.
    - Contributed more than any other country to support the Fund’s technical assistance and capacity building efforts in more than 120 countries—contributing more than $400 million since 1990.
    - Supported the IMF scholarship program, which has benefited more than 500 students.
  - Japan is well represented at the most senior levels of the IMF (Deputy Managing Director Naoyuki Shinohara cited).

### Conclusion: Japan’s Partnership with the IMF
- Governance and representation
  - IMF governance must reflect its membership; the ‘quota’ reforms agreed in late 2010 will ensure that once in effect, three Asian countries—China, India, and Japan—will be among the IMF’s ten largest shareholders.
  - Asia’s voice in the IMF will become even more powerful.
- Upcoming event
  - October: the 2012 Annual Meetings of the IMF and World Bank will be hosted in Tokyo; global attention will focus on Japan’s leadership, spirit, and commitment to multilateralism.
- Closing
  - The Fund looks to use growing global interconnections to bring nations together in response to crisis; Japan’s partnership and multilateral commitment are indispensable.

*Source: Partnership & Recovery - The Shared Path to Global Stability & Growth, Nikkei Symposium Keynote Speech by By Christine Lagarde, Managing Director of the International Monetary Fund; July 6, 2012.*

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## References

- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [Christine Lagarde](https://www.imf.org/external/np/omd/bios/cl.htm)
- [Press Release: IMF Managing Director Christine Lagarde Calls for Cooperative Response to Crisis, Praises Japan’s Role](https://www.imf.org/external/np/sec/pr/2012/pr12250.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Webcast](https://www.imf.org/external/mmedia/view.aspx?vid=1723010848001)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp070612_