Tharman Sees “Greater Global Policy Resolve”

“Although the economic environment has weakened, the policy resolve has strengthened.” This is how Tharman Shanmugaratnam, Singapore’s Deputy Prime Minister and Minister for Finance , who is Chair of the IMF’s policy-setting committee, described the outcome of the IMF-World Bank annual meetings in Tokyo.

Growth is slower than anyone expected,” he admitted in a video interview.  “It is slower in Europe, it is not as fast as it should be in the United States, not as fast as it should be to bring unemployment down, and it is slowing in Asia to a greater extent than was expected. Tharman is chair of the 24-member IMFC.

“But we are now in a much better situation than six months ago when it comes to policy solutions.” He said there had been major steps forward in Europe “despite some disagreement on individual pieces.”  But underlying problems in the Eurozone, budget problems in the United States, and structural problems in global economy are longer term problems and “cannot be fixed quickly.”

For a quick brief on the outcomes from the meetings in Tokyo, take a look at:

9 Responses

  1. Timely identification of the problems is no doubt difficult but if identified properly and in time to then find the solutions, it becomes a lot easier. Just as it is difficult to diagnose the disease but much easier to prescribe the medicines. The IMF has so painstakingly performed the groundwork and now it is up to the regulators to do the spadework and pick up the world economy.

    • Javed Mir. What “painstakingly performed groundwork” are you referring to?

      Current regulations, with their capital requirements for banks and risk-weights, discriminate in favor of The Infallible, those already favored by banks and markets, and against The Risky, those already disfavored by banks and markets.

      Is there not something morally repugnant about that?

      Does this not completely impede the banks from performing efficiently their economic resource allocation function?

      I have not yet heard IMF opining on that!

      • Per: Thank you for your comment. When I say that the IMF has done its job, I mean their regularly published reports like WEO, Fiscal Monitor, GFSR and so much literature on Surveillance and Technical Assistance which clearly give guidelines to repair the financial and banking systems. Now it is up to the governments to implement this professional advice. The domain of the infallible can only be earmarked by the constitutions of the countries concerned. These structural problems are longer term problems and require consistent efforts to get the results.

        Kind regards

      • Javed Mir. I have not seen in “the regularly published reports like WEO, Fiscal Monitor, GFSR and so much literature on Surveillance and Technical Assistance which clearly give guidelines to repair the financial and banking systems” any recommendations to repel the Basel Committees bank regulations. Have you?

        http://subprimeregulations.blogspot.com/2012/10/regulations-and-morals.html

      • Per: why should we expect that the IMF should repel the Basel recommendations? The IMF works in an advisory capacity. To the best of my knowledge it lends by prescribing its own terms and conditions after assessing the repayment capacity of the borrowers.

        Kind Regards

      • Javed Mir. The IMF has explicitly among its goals to “secure financial stability–promote high employment and sustainable economic growth” and, little has jeopardized so much those goals than Basel bank regulations.

        In this respect, the IMF not only has the obligation but really could have the most determinant influence in calling out the fundamental mistakes of the Basel Committee.

        On a personal note, I also expect the IMF to do that. This is because, when I was an Executive Director of the World Bank (2002-04), when Basel II was discussed, I was “informed” that financial regulations and financial stability was primarily in the domain of the IMF, and that, because of something called a “harmonization agreement” between the two institutions, I should basically keep out of it.

        And let me assure you that sitting in a developing institution and not being able to talk about the need of risk-taking for development, was, as I hope you can understand, an immense source of frustration to me.

      • Per: Thank you for giving me additional information on this subject. Should we not wait for what our experts at the IMF tell us as to how they can exert their influence more effectively.

      • Yes, let us wait… but, as the Swedes would say, meanwhile, not just “rolling our thumbs”

  2. For someone who opines that they got it all wrong with their regulatory discrimination in favor of The Infallible and against The Risky, hearing about “policy resolve strengthened” and “sticking to a medium term and long term narrative” as the sources for optimism, is indeed truly scary stuff.

    He also mentions the important IMF staff work on establishing the “link between sovereign risk and financial sector risk… trying to connect all the dots”. Come on! That should be easy. Zero or very small capital requirements for banks when lending to “infallible sovereigns” is The Dot.

    http://subprimeregulations.blogspot.com/2010/05/letter-in-washington-post.html

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