This past weekend, 187 countries came together in Washington D.C. to focus on the economic crisis facing the world.
They were here for the 2011 Annual Meeting of the IMF and World Bank, at which finance ministers and central bank governors mix with businesspeople, civil society, labor leaders, and parliamentarians to discuss the critical issues we face.
Coming in to this Meeting, I had warned of a dangerous new phase now facing the global economy and had called for bold and collective action. Coming out of the Meeting, I feel strongly that the global community is beginning to respond.
Why? Three reasons: a shared sense of urgency, a shared diagnosis of the problems, and a shared sense that the steps needed in the period ahead are now coming into focus.
First, the sense of urgency
There was clear recognition of the gravity of our situation. The IMF’s latest forecasts, released during the Meeting, indicate that global growth is projected to slow to 4 percent this year and next. The advanced economies will manage only an anemic 1½‑2 percent. Clearly, the recovery of the global economy remains worryingly weak and uneven.
In addition, the risks are piling up—propelled by a negative feedback loop between weak growth, weak balance sheets—of governments, banks, and households—and weak political commitment to do what is required.
This, in turn, has fuelled a crisis of confidence that imposes not only economic but also social costs.
While the clouds may be darkest over Europe, there remains huge uncertainty in the United States. And what makes the situation all the more urgent is that it has implications for every country.
In our interconnected world, what happens in the advanced economies affects everyone—the Kenyan farmer, the Brazilian designer, the Chinese entrepreneur.
Second, the shared diagnosis
The first priority, of course, must be to break the vicious cycle of weak growth and weak balance sheets feeding negatively off each other. It was widely recognized at the meeting that the advanced economies are at the core of an effective resolution—especially the United States and Europe.
For the US, the main challenge is to adopt a credible strategy to reduce the fiscal deficit over the medium and long term, deal urgently with high unemployment, and relieve pressure on overly-indebted households.
For Europe, the main challenge is to deal with the inter-linked problems of sovereign and bank debt—and deal with them together. Those attending the Annual Meeting were particularly encouraged by the determination of Euro-area countries to “do whatever is necessary” to resolve the problems facing them.
While the advanced economies must step up to the plate, the emerging market economies and low-income countries also have their part to play.
Emerging market countries have a major role in helping to achieve the ultimate objective of rebalancing the global economy—with external surplus countries relying more on domestic demand and those with current account deficits taking action to ward off overheating.
Low-income countries need to rebuild the policy buffers that served them well during the crisis, and invest in growth and employment creation as well.
Third, the actions needed are coming into focus
Policymakers at the weekend called for “exceptional vigilance, coordination and readiness to take bold action.” This should span the following areas:
- Fiscal policy must navigate the twin threats of undermining credibility or undercutting recovery. Advanced countries need fiscal consolidation as a matter of priority, but, for some, pushing too fast will harm growth and jobs. So the pace must neither be too hesitant nor too hasty. The approach must be country-specific.
- Monetary policy should remain accommodative—given that inflation expectations are generally well-anchored in the advanced economies. And central banks should stand ready to dive back into unconventional waters as needed.
- Financial sector reform is crucial. Bank balance sheets must be strong enough to continue to lend to fuel growth. We also still need stronger and more consistent financial regulation.
- Structural reforms to boost competitiveness and growth beyond the immediate crisis are also important. And, in the process, we must pay attention to the social dimension. We need growth that supports jobs; we need growth that benefits the whole of society.
As I said during the Meeting, the critical factor cutting across all of these is implementation, implementation, implementation.
Support from the IMF
I also emphasized that the IMF will support our member countries as they take these actions.
I put forward an Action Plan focused on making our economic analysis and policy advice more effective, strengthening further our lending toolkit and the global financial safety net, and continuing to provide much-needed technical assistance and training.
Act now, act together
So looking back on the weekend, I believe that the shared sense of purpose that emerged is very important for the global economy.
That said, follow through—by all concerned—is now even more important. And that means taking action not in the years ahead, but in the weeks ahead.
We are all in this together—we can only get out of it together.
Filed under: Advanced Economies, Annual Meetings, Economic outlook, Emerging Markets, growth, IMF, International Monetary Fund, Low-income countries, Multilateral Cooperation Tagged: | 2011 World Bank-IMF Annual Meetings, Annual Meetings, competitiveness, confidence, Financial regulation, financial sector reform, fiscal policy, household balance sheets, IMF, IMF lending, IMF surveillance, iMFdirect, International Monetary and Financial Committee, International Monetary Fund, medium-term fiscal consolidation, monetary policy, political will, sovereign and financial balance sheets, structural reform, technical assistance, unemployment, weak balance sheets, weak growth