Follow Us:
Sunday, August 07, 2022

IMF,WB chiefs urge fair growth

'There seems to be a wide consensus on long-term strategies for reform'

Written by Agencies | Tokyo |
October 12, 2012 3:17:54 pm

Countries should not sacrifice growth for the sake of austerity,the head of the International Monetary Fund told global financial leaders Friday,urging that the pace of work on bringing down debt be tempered by spending to help get the unemployed back to work.

Balancing those sometimes competing priorities is the central puzzle facing policymakers as the world economy,even in dynamic Asia,slows further,IMF chief Christine Lagarde told finance leaders at the IMF and World Bank annual meeting in Tokyo.

Lagarde said she was “desperately optimistic” on prospects for a global recovery,while warning against backsliding on reforms needed to prevent future financial crises.

“The first priority,clearly,is to get beyond the crisis,and restore growth,especially to end the scourge of unemployment,” Lagarde said.

Subscriber Only Stories
Re-Defining The Tradition In Folk Art: An Art Educator’s PerspectivePremium
Symbiosis School of Sports Sciences (SSSS) launches undergraduate program...Premium
MIT World Peace University launches Five-Year Integrated B.Tech with MBA ...Premium
Bring Home The Ultimate Solution For The Whole Family With Airtel Xstream...Premium

Greece,Spain and other European countries laboring under massive debts have slashed spending and raised taxes,seeking to restore confidence in their public finances and qualify for emergency financing. The economies of financially healthier European countries,such as Germany and Finland,face a potential blow to growth if those troubled economies fail to get their financial houses in order. At the same time,the recovery of the 17-nation grouping that uses the euro could founder if tax increases and spending cuts bite too deeply.

While there seems to be a wide consensus on long-term strategies for reform,there is less agreement how painful such policies should be in the near-term given the persistent risk of recession and surging unemployment.

Lagarde said monetary policies must encourage banks to lend,while spending cuts are adjusted to the “right pace.” Debts must be brought down in the medium term,and structural reforms are needed to sustain growth in the long term,she said.


“That’s the package that is needed,” Lagarde said. “Let us not delude ourselves. Without growth,the future of the global economy is in jeopardy.”

“It’s a marathon,not a sprint. It could take years,” Lagarde said later Friday in an on-camera debate hosted by the British Broadcasting Corp. where she good naturedly traded jibes with German Finance Minister Wolfgang Schauble.

“When you are running the 42 kilometers of a marathon,you can’t just stop and turn around and go the other way,” Schauble retorted,accusing those who favor going easy on debt reduction of backpedaling on their commitments.


“Increasing public debt does not enhance growth,it damages growth,” he said.

Lagarde contended that it was not an issue of reversing commitments but of adjusting the pace to suit each country’s unique situation.

The IMF has scaled back its global growth forecast for 2012 to 3.3 percent from 3.5 percent,and has warned that even its dimmer outlook might prove too optimistic if Europe and the United States fail to resolve their crises.

On Friday,the fund said economic growth in the Asia-Pacific region slowed to 5.5 percent in January-June. That is well above the global average,but the lowest for the region since the financial crisis in 2008. The slowdown is largely because of sluggishness in Europe and the U.S. It also noted weakness in China and India,whose dynamism had helped counter weakness elsewhere.

“The global recovery is still too weak. Job prospects for untold millions are still too scarce,and the gap between the rich and the poor is still way too big,” Lagarde said.


Europe’s darkening economic outlook is drawing calls for more public support even from austerity champion Chancellor Angela Merkel. She said Thursday it was incumbent on Germany,whose 0.3 percent growth in the second quarter helped offset a 0.2 percent contraction among the 17 nation grouping that uses the euro,to “do things to stimulate the European economy.”

Lagarde has urged that European creditors give Greece an extra two years to meet austerity targets required to get and continue receiving loans,after nearly defaulting on its mountain of debt.


Such accommodations would just confuse markets,increasing uncertainty,Schauble said.

In Japan,both Lagarde and Jim Yong Kim,president of the World Bank,have stressed that without greater equity and equality,growth will be unsustainable.


The IMF’s mission is threefold: economic surveillance,advice and providing temporary funding,while the World Bank’s mission is to fight poverty. The bank uses funds from donor members and proceeds from bond sales to provide low-interest loans to developing countries.

Looming over the gathering is the question of whether the US,the world’s biggest economy,might hit a so-called “fiscal cliff” of tax increases and deep spending cuts that will take effect in 2013 unless Congress and the Obama administration resolve a budget impasse.

Such moves would be a first step toward reforms needed to make growth sustainable in the long run,Lagarde said. Debt levels averaging over 100 percent in the advanced economies are at “pretty much wartime levels,” she said.

“This leaves governments highly exposed to subtle shifts in confidence,” she said,urging that policymakers also press ahead on reforming flawed financial markets and institutions.

“One lesson though is clear from history,” she said.

Reducing public debt is incredibly difficult without growth. High debt,in turn,makes it harder to get growth,so it’s a very narrow path to be taken.

“It’s probably a long path,and one for which there is probably no shortcut,either. It’s a path that needs to be taken,” she said.

📣 Join our Telegram channel (The Indian Express) for the latest news and updates

For all the latest News Archive News, download Indian Express App.

First published on: 12-10-2012 at 03:17:54 pm
Latest Comment
Post Comment
Read Comments

Featured Post