|BBC's Nik Gowing hosts a live "BBC World Debate- Global Economy: A Tipping Point?" with panelists Austan Goolsbee (L), professor at University of Chicago and former chairman of President Obama's Council of Economic Advisers; International Monetary Fund's managing director Christine Lagarde (2nd Left); Mohamed El-Erian (2nd R) CEO of Pimco and Olli Rehn, European commissioner for Economic and Monetary Affairs, European Commission at the IMF Headquarters 2 September 22, 2011 in Washington, DC. IMF Staff Photo/Stephen Jaffe |
IMF-World Bank Annual Meetings:
The world economy is in a dangerous new phase,
with risks on the rise, but while the problems are largely economic, the
solutions are mainly political, IMF managing director Christine Lagarde said.
At her opening press conference ahead of the
2011 IMF-World Bank Annual Meetings in Washington DC, Lagarde outlined three
main issues for the discussions - - the weak global economic outlook, policies
to safeguard the recovery, and the need for stronger leadership.
World growth had slowed, hitting jobs and
throwing more into poverty, and risks had risen considerably, she said.
The job of the IMF, with its 187-country
membership, would be to help facilitate comprehensive solutions. With strong,
synchronized leadership, the world economy could rebound over time. “We are
in this together and we can pull out of it together,” she said.
Recognizing the “anxiety and trepidation”
of markets, she said the world needed to revive the collective spirit of the
Group of Twenty (G-20) meeting in London in 2009, when leaders acted together.
Dangerous new phase
Repeating her earlier warning that the world
economy had entered a dangerous new phase, Lagarde said that in advanced
economies, the large debts of governments, households, and banks risked
suffocating the recovery.
Some key emerging economies were also still not
doing enough to boost domestic demand—for their own sake, and also to contribute
to global demand.
According to the IMF’s
latest global forecast, released on September 20, real GDP is expected to
grow by a fairly robust 6.4% in emerging and developing economies but by only
1.6% in advanced economies in 2011.
About 10,000 policymakers, private sector and
civil society representatives, journalists, and academics are expected to attend
Meetings, which provide an opportunity for economic leaders to consider
collective solutions to the major problems confronting the world.
The four ‘Rs’ for recovery
Although policy options had narrowed, there was
still a path forward. Lagarde summarized these options as the four “Rs”: repair,
reform, rebalance, and rebuild.
The IMF says advanced countries need to get debt burdens under control through fiscal
consolidation. But consolidating too quickly could hurt the recovery.
Credible measures that deliver and anchor savings in the medium term will
help create space for accommodating growth today - - by allowing a
slower pace of consolidation. In the United States, household debt also
needs repair, while in Europe, it is the twin problems of sovereign debt and
the need to strengthen banks’ capital buffers.
While progress has been made, the IMF says priority here is further financial sector
Policy actions are needed to achieve strong, stable, and balanced global
growth - - to shift from public to private demand in the advanced economies,
and from external to domestic demand in key emerging economies.
- Rebuild. The IMF says low-income countries have navigated the crisis rather well, but they need to
rebuild policy buffers to protect themselves against future storms. And the
international community needs to help.
Solutions mainly political
While the policies needed were clear enough, the
world needed strong leadership to get things done.
“The set of solutions and methods to
address the situation are quite well known. What is needed, and what certainly
we hope to be able to help generate on the occasion of the Annual Meetings, is
the political leadership, and the degree of synchronization that needs to happen
for the path to recovery to be made possible,” Lagarde
“Collective leadership is definitely needed.
It’s not going to be a matter for one or two countries to lead the show. As I
said, each and every country is engaged in that process and is at risk in the
current situation, but can also participate in the solution. So I think it is
for that reason that an institution like the IMF actually makes sense.”
Difficulties in the Eurozone
With much attention focused on difficulties in
the Eurozone, Lagarde said European countries were solidly behind Greece, but
implementation of commitments would take time.
“There is obviously a gap between very solid,
very strong governmental commitments at the highest level of those states, and
the implementation time. That’s inherent to parliamentary life … we are no
longer in Napoleonic times when a leader could just snap his fingers and make it
happen. We are in democracies and it takes time.”
In the Eurozone leaders’ July 21 agreement
“there was financial commitment, there was a collective
political determination to be in it together, there was open-ended financial
support provided that countries were delivering under their commitments … and
there was also a collective drive to reinforce governance and discipline among
It would be critical for both the Greek
government and the Eurozone partners to implement their commitments. But she
underlined the wider purpose of the European Union.
“It’s not only about economics, it’s not only about finance. It’s also about a
collective political destiny among countries that have spent centuries fighting
each other and which are determined to stay together.”