Plato & the Incas: Overheard at the IMF’s Annual Meetings

By iMFdirect

According to Plato, you do not really know something unless you can give an account of it.  Otherwise, you have just an opinion and not real knowledge.  The seminars that took place during the IMF’s Annual Meetings in Lima, Peru would have made Plato proud.

Our editors deployed their pens and notepads and brought back these themes and highlights.

Growth

Trouble in emerging markets, a lack of investment, and an uneven global economic recovery weighs on the prospects for growth.  One bright spot is the growing idea that greater access to financial services throughout a country’s population, called financial inclusion, can help economic growth.

Liliana Rojas-Suarez, Senior Fellow, Center for Global Development speaks during the flagship seminar Financial Inclusion: Can it Meet Multiple Macroeconomic Goals

Liliana Rojas-Suarez, Senior Fellow, Center for Global Development speaks during the flagship seminar Financial Inclusion: Can it Meet Multiple Macroeconomic Goals

“Countries with commitments to financial inclusion have economies that have grown stronger than those who haven’t,” said Alfred Hannig, Executive Director of the Alliance for Financial Inclusion.  “Countries with financial inclusion targets have grown 13.4 percent between 2011 and 2014, compared to 8.5 percent for those without.”

While originally thought of as expanding peoples’ access to credit, it now also includes payments, savings, and investment.

Financial inclusion also can entail financial risks, and we’ll get to those in a bit.

Volatile commodity prices, such as oil and metals, were also a hot topic given how they complicate a country’s growth and fiscal policy.  Predicting how long a boom or bust will last is difficult, so the idea is to save in the good years so you can spend in the bad ones.

Joseph Stiglitz, Columbia University, speaks during the seminar Structural Reforms, Inequality, and Growth, during the 2015 IMF/World Bank Annual Meetings on Friday, October 9 in Lima, Peru. Ryan Rayburn/IMF Photo

Joseph Stiglitz, Columbia University, speaks during the seminar Structural Reforms, Inequality, and Growth

Structural reforms, from deregulating telecoms to education investment and everything in between, are no longer an “either or” proposition: they can boost growth and reduce inequality, with the right political and policy choices.

Strong, transparent and accountable economic institutions are key to help a country deal with the ups and downs of the global economy, and with the growing new frontier of policy issues.  The foundation of a strong institution is built on the skills of the people who work there, which is why capacity building and training is the lynchpin to help make all this happen, particularly in Latin America and the Caribbean. 

Climate change, energy prices 

Speaking of structural reforms, the policy choices and changes countries have to make to address climate change, energy pricing, and energy subsidies were another topic up for debate.  While each country will have to design the policy that best suits them, the IMF’s Managing Director Christine Lagarde reminded everyone of their collective responsibility.

CNN panel discussion on Climate Change

CNN panel discussion on Climate Change

“If we chicken out of this we’ll all turn into chickens and will be fried, grilled, toasted and roasted,” said Lagarde.

Countries will have to muddle through designing energy prices to meet climate change objectives, and some panelists thought advanced economies are not taking full advantage of the current low oil prices to address energy prices and subsidies. 

“Finance Minister, go home, price it right, tax it smart, do it now,” said Lagarde.

Finance 

For a profession that some credit with saving the world from an even bigger global crisis that the one we got, central bankers were in an introspective mood.  Whether from advanced, emerging or low- income countries, what they have learned and what they need to understand better dominated the discussions against the backdrop of how long low interest rates in advanced economies like the United States would last.

If you are a central banker these days, you do not want to bump into a tree while you’re staring at the forest.  Up for debate was how much to focus on price stability and if, when and how to broaden your view to include the risks to the financial system as a whole. The case for using monetary policy to contain risks to financial stability—known as leaning against the wind—remains open.  Views ranged from yes, to no, and perhaps as a last line of defense.

Raghuram Rajan, Reserve Bank of India, Governor speaks during the flagship seminar Financial Inclusion: Can it Meet Multiple Macroeconomic Goals

Raghuram Rajan, Reserve Bank of India, Governor speaks during the flagship seminar Financial Inclusion: Can it Meet Multiple Macroeconomic Goals

Speaking of financial stability, it turns out that while financial inclusion has a positive impact on growth, it also can have a negative impact on financial stability.  If credit grows too quickly and new lenders are not properly supervised, risks will grow.  New technology is both the boon and bane for the expansion of services and products, as well as risks.  So how do policymakers keep an open mind to innovation, and regulate these new services to preserve financial stability?

“Let a variety of players enter, and ban only those we are certain will do harm,” said Raghuram Rajan, the Governor of the Reserve Bank of India and a former IMF chief economist.

There is evidence that the once long-prosperous and productive Inca economy had no market system and no money.

Those were the days.

Written by: Jacqueline Deslauriers

Contributors: Jacqueline Deslauriers, Lika Gueye, Julia Gutierrez, and Peter Kunzel.

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