The IMF at 70: Making the Right Choices—Yesterday, Today, and Tomorrow (Christine Lagarde, October 10, 2014)
IMF News, October 10, 2014
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Bibliographic details
- Authors: Christine Lagarde Managing Director
- Published: October 10, 2014
Overview and framing
- Occasion: IMF/World Bank Annual Meetings, Washington, D.C., October 10, 2014; speech delivered by Christine Lagarde, Managing Director, International Monetary Fund.
- Central thesis: The world faces a pivotal "fork in the road" with three fundamental collective choices to be made: acceleration versus stagnation; stability versus fragility; solidarity versus seclusion.
- Framing devices:
- Lewis Carroll quote: “That depends a good deal on where you want to get to.”
- Historical contrasts: the wrong turn ~100 years ago vs. the 1944 “multilateral moment” that created the IMF and World Bank.
- Final moral: “It is our choices, Harry, that show what we truly are, far more than our abilities”.
1. Acceleration or stagnation — growth, jobs, and inclusiveness
Findings and diagnostics:
- Demographics: “In less than a decade, the over-65s will outnumber the under-5s—for the first time ever.”
- Inequality: “7 out of 10 people in the world today live in countries where inequality has increased over the last three decades.”
- Technology: Digital revolution “is not job-intensive” and could increase inequalities.
- Climate and environment:
- “The 12 warmest years on record have occurred in the last 17 years.”
- “The incidence of weather-related disasters has increased threefold since the 1960s.”
- “By 2030, almost half of the world’s population will live in regions of high water stress or shortage.”
- Growth prospects: “We expect growth of only 3.3 percent this year, and still under 4 percent next year.”
- Unemployment: “200 million people around the world are looking for work today—if the unemployed formed their own country, it would be the fifth largest in the world.”
- Regional challenges: youth unemployment chronic in southern Europe and North Africa.
- Gender gap: “An estimated 865 million women around the world are being held back.”
Policy responses recommended:
- Demand-side:
- Continue accommodative monetary policy with attention to spillovers and spillbacks.
- Fiscal policy “must be customized to country circumstances” and be “growth- and jobs-friendly”.
- Supply-side:
- Open service industry monopolies.
- Boost infrastructure investment.
- Improve education, financial inclusion, and business environment, especially in emerging markets and low-income countries.
- Use fiscal instruments such as carbon pricing to promote efficiency and green choices.
- Labor-market and social policies:
- Active labor market policies and youth training programs.
- Family-friendly policies (affordable child-care, flexible working arrangements) to increase female labor force participation.
- IMF role: Provide country-specific advice to make growth more sustainable, job-rich, and inclusive.
2. Stability or fragility — financial risks and global safety nets
Findings and diagnostics:
- Dual imbalance: “too little economic risk taking, and too much financial risk taking.”
- Nonbank risks:
- “Mutual funds now account for 27 percent of global high-yield debt, twice as much as in 2007.”
- “The top ten global asset management firms now control a whopping $19 trillion.”
- This asset-management concentration “is larger than the world’s largest economy—the United States.”
- Global financial integration:
- “The degree of financial integration has jumped tenfold since the IMF was founded.”
- “In the two decades before the crisis, international bank lending—as a share of world GDP—rose by 250 percent.”
- Systemic risk: heightened likelihood and virulence of crises due to interconnectedness; history: “The bigger the boom, the bigger the bust.”
Policy responses recommended:
- Complete and update financial sector reform agenda.
- Overcome too-important-to-fail:
- Stronger cross-border resolution regimes for megabanks.
- Better rules and monitoring for nonbanks and shadow banking.
- Improved safety and transparency over derivatives.
- Strengthened macroprudential safeguards.
- Cultural change: shift away from profit-over-prudence mentality toward ethics and service.
- Global safety net:
- Regional arrangements have a role (e.g., BRICs contingency reserve arrangement).
- The IMF “must have adequate instruments and resources” as the only truly global institution focused on financial stability.
3. Solidarity or seclusion — multilateralism, cooperation, and global public goods
Findings and diagnostics:
- Shift in global economic weight:
- “Fifty years ago, the emerging markets and developing economies accounted for about a quarter of world GDP. Today, it is half, and rising rapidly.”
- During the global crisis, emerging markets “contributed most to global growth.”
- Rise of diverse stakeholders: NGOs, cities, citizen activists, aided by technology and social media — demanding updated modes of cooperation.
- Tax and external imbalances:
- Tax competition “especially hurts low-income countries” and makes revenue mobilization harder.
- External imbalances demand shared responsibility: “behind every current account deficit lies a current account surplus.”
Policy responses recommended:
- Renewed commitment to open trade and investment; reject “beggar-thy-neighbor” policies.
- Three priority areas for international cooperation:
- Agreement on cross-border resolution of megabanks.
- Actions to reduce harmful tax competition and make tax shifting more difficult.
- Joint responsibility for correcting external imbalances.
- Climate action: 2015 “is shaping up to be a make-or-break year”; global action required to protect poorest people, future generations, and the planet.
- New multilateralism: update, adapt, and deepen cooperation while preserving the underlying philosophy of shared public goods.
- IMF role: pivotal in supporting updated cooperation and being more representative of membership; completion of the 2010 governance reforms is “crucial.”
Institutional performance, capacity, and staff
Key points:
- Since 2008: IMF “have committed almost $700 billion to countries in need, provided training to all of our members, and technical assistance to 90 percent of them.”
- Recent engagement: “fresh financial assistance to Ukraine, the Arab transition countries, and the African nations hit by Ebola.”
- Tribute and organizational values:
- Praise for IMF staff and Executive Board dedication to international public service.
- Personal tribute to Wabel Abdallah, IMF resident representative in Afghanistan, who “was brutally killed by a terrorist attack in Kabul earlier this year,” and whose service the Fund honors.
Conclusions and exhortation
- Collective call to choose:
- “acceleration over stagnation, stability over fragility, solidarity over seclusion.”
- “Let us choose the path of 1944, not 1914.”
- Final moral: choices define identity and destiny more than abilities.
Speech by Christine Lagarde, Managing Director, International Monetary Fund; October 10, 2014. The IMF at 70: Making the Right Choices—Yesterday, Today, and Tomorrow.