2014 Annual International Monetary Fund Meeting
Rewind to six years back and you may recall the meeting of finance ministers and central bank governors in Washington. It should be recallable because it followed what appeared to be the Second Great Depression. The meeting marked the annual gathering of the International Monetary Fund, IMF. Following the collapse of US investment bank, Lehman Brothers, no institution appeared safe and it was quite obvious that the global financial system was vacillating on the edge.
The remedial action was an attempt to rescue poor performing banks by putting together series of plans and joint moves. At the long run, the supposed second Great Depression was averted but the questions and reality are for how long and at what price.
Last week, the IMF and World Bank while celebrating their 70th birthdays met in Washington for their annual convention. Despite the supposed celebrations, the atmosphere was rather dark and gloomy with pertinent issues dominating the agenda. The IMF stressed points of looming global risks and called for bold action. They highlighted that growth was a priority and urged governments not to crush growth by becoming too stringent and drastically tightening budgets. In contrast, Germany downplayed the idea of a recession with German Finance Minister, Wolfgang Schaenble stating that: “There is no reason to talk about a crisis in the global economy”.
Prior to 2009, the global economy was somewhat robust but took a downward tide in the spring of 2009. Although there is optimism that the world will return back to those relatively glorious days, forecast by the IMF have been lowered over the years. In essence, there is a recovery but it is weak and uneven. According to IMF’s economic counsellor, Olivier Blanchard, at 3.3%, growth rates would be 0.4 points lower than anticipated. Cutting its 2014 global growth forecast from 3.4% to 3.3%, this is the third reduction in this year.
“A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high,” the IMF said. This ‘reduction in work’ is what concerns the IMF as it may be permanent. Blanchard also noted that there is the possibility of developed countries never reaching pre-crisis growth levels.
Europe was of top concern, with a staggering economy and a very low inflation rate. Despite these clear signs, European officials sought to dispel the gloom. Mario Draghi, President of European Central Bank voiced that resistance from the fiscal tightening in the eurozone was set to slowly lose effectiveness. However, the managing director of IMF, Christine Lagarde advised that Europe should adopt a flexible three-arrow policy similar to that being pursued by Japan’s Prime Minister, Shinzo Abe.
The subject of Ebola was not left out. It has become clear that Ebola is no longer a localised problem restricted to the shores of Liberia, Guinea, and Sierra Leone, but a global threat. With the first cases appearing in the US and Spain, policymakers have finally decided it is time to take the bull by the horn.
In conclusion, the IMF meeting focused on structural returns as a means of boosting economic performance. In the words of Singapore’s Finance Minister, Mr Shanmugaratnam, “To solve today’s growth problems, we have to lift potential growth… if we don’t address tomorrow’s growth problems today, we will be left with today’s problem tomorrow”.