## Annual Meetings Speech: The Road Ahead—A Changing Global Economy, A Changing IMF

_IMF News, October 12, 2012_

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## Bibliographic details
- Authors: Christine Lagarde Managing Director
- Published: October 12, 2012

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### Introduction — the World Comes to Japan
- Speaker: Christine Lagarde, Managing Director, International Monetary Fund.
- Occasion: Annual Meetings, Tokyo, Friday, October 12, 2012. As prepared for delivery.
- Opening themes: gratitude to Japanese hosts and recognition of Sendai recovery; emphasis on collective action and cooperation.

### A. World in Flux — Big Sweeping Changes
- Long-term improvements in living standards:
  - real GDP per capita: nearly 3½ times higher for the world, 4 times higher for Japan, 9½ times higher for emerging Asia.
  - world trade volumes are 16 times higher.
  - half a billion people in Asia have pulled themselves out of poverty over the past few decades.
- Megatrends reshaping the global economy:
  - Demographics: vast youth cohorts in rising regions; graying populations in advanced and major emerging economies; increasing female economic participation.
  - Projection: By 2035, Africa will have the world’s largest labor force of more than a billion people—more than India or China.
  - Projection: By 2035, there will also be more than a billion people aged over 65 in the world.
  - Economic power shifts: Emerging markets and developing economies now account for half of world GDP, up from a quarter in 1964.
  - Technology and connectivity: nearly 3 billion people are connected to the internet.
- Regional notes:
  - Asia: strength and dynamism evident.
  - Brazil: example of inclusive growth focus under President Dilma Rousseff.
  - Europe: undergoing deep integration; Eurozone severely tested; need for deeper banking and fiscal integration plus structural reforms.
  - Middle East: transformation with difficult road ahead; potential for Arab transformation with commitment and external support.
  - Sub-Saharan Africa: growing strongly; rise of “frontier markets”; Nigeria cited as a reform success story.
- Overarching caution: global recovery remains too weak; unemployment and inequality persist; optimism must be translated into action.

### B. Navigating the Road Ahead — Three Milestones
- Three milestones to manage change:
  - Putting the crisis behind us.
  - Completing reform of the financial sector.
  - Addressing inequality and building inclusive growth.

- Putting the crisis behind us — policy package:
  - accommodative monetary policy;
  - the right pace of fiscal adjustment with solid and realistic plans to bring debt down over the medium term;
  - finishing the banking sector clean-up;
  - structural reforms to boost productivity and growth;
  - rebalancing global demand toward dynamic emerging markets.
- Fiscal constraint concern:
  - public debt now averages almost 110 percent of GDP for the advanced economies—the highest level since World War II.
  - reducing public debt is difficult without growth; high debt hinders growth and policy flexibility.
- A better financial system — priorities:
  - complete the agenda of financial sector reform: better regulation, better supervision, better resolution of cross-border entities, sensible incentives, level playing field.
  - progress noted on Basel III for capital and liquidity buffers, but momentum at risk.
  - outstanding areas: derivatives, shadow banking, too-important-to-fail institutions.
  - IMF findings: better regulation nudges bank lending rates up, but by relatively little; increasing capital buffers to appropriate levels helps growth; reforming financial sector taxation can reduce excessive risk-taking and leverage.
  - mobilizing savings: emerging Asia accounts for about a third of world savings; developing local financial markets can redirect savings to domestic investment.
- Inequality and inclusive growth — policy implications:
  - Recent IMF research: less inequality is associated with greater macroeconomic stability and more sustainable growth.
  - Policy directions: balance efficiency with equity in fiscal policy; fairness in burden-sharing; protection for the weak and vulnerable; better financial inclusion; better transparency and governance.

### C. The Future IMF — Serving our Members in the New World
- Overarching principle: need for greater cooperation; multilateral institutions are more important in an interconnected world.
- IMF’s evolving role: new approaches, new tools, renewed relevance grounded in mandate.
- IMF as trusted adviser:
  - recent judgment calls: recapitalize European banks; larger European financial firewall; more balanced approach to fiscal adjustment; urgent attention to the fiscal cliff.
  - increased focus on economic and policy spillovers.
  - new instruments and initiatives:
    - Integrated Surveillance Decision to cross-fertilize country-level and global surveillance.
    - External Sector Report to sharpen multilateral assessments, including exchange rates.
    - Financial Surveillance Strategy to strengthen focus on financial sector stability.
- IMF resources and lending activity (crisis period metrics):
  - committed $540 billion and disbursed $157 billion in 126 lending programs—57 non-concessional, 69 concessional.
  - membership decision earlier this year to boost resources by $456 billion, bringing total lending power to over $1 trillion.
  - windfall profits from gold sales used to top up the Poverty Reduction and Growth Trust for concessional lending.
- Governance and global ownership:
  - 2010 reforms: 6 percent in quotas will shift to the dynamic emerging and developing countries, or 9 percent in total since the start of the previous 2006 reform.
  - For the first time, Brazil, China, India, and Russia will be among the top ten shareholders.
  - For the first time at any international financial institution, an all-elected Executive Board will be established.
  - Progress toward reform completion: over 75 percent of consents for the quota increase; more than 120 countries for Board reform.
  - Remaining requirement: secure 85 percent of voting power to complete the Board reform and the 2010 package.
  - Call to membership to finalize reforms.

### Conclusion — The Spirit of Tokyo: Cooperation
- Tribute to Japan: champion of multilateralism and global cooperation; celebrating 60 years of partnership with the IMF.
- Appreciation for IMF staff and Executive Directors for commitment and guidance.
- Human story and metaphor: essay by Nao Yonemoto recounting the proverb “give salt to your opponent” — be generous to those in need; helping each other in difficult times is the only way forward.
- Final message: the spirit of cooperation is essential; encourage delegates to carry it home.

*Source: Annual Meetings Speech: The Road Ahead—A Changing Global Economy, A Changing IMF, by Christine Lagarde; Tokyo, Friday, October 12, 2012. As prepared for delivery.*

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## References

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- [Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)
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_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp101212a_