[ 2015-01-27 ]

IMF Managing Director Christine Lagarde

2015 must be action year -IMF Boss
The year 2015 must be the “year of action”
when policymakers in Ghana and other parts of the
world redouble their efforts to tackle deep-seated
economic weaknesses and show greater political
leadership on infrastructure investment, trade
agreements, and climate change, IMF Managing
Director Christine Lagarde has said.

She told a Washington audience the global economy
is facing strong headwind despite the boost from
positive factors such as cheaper oil and stronger
U.S. growth.

“More than six years after the Great Recession,
too many people still do not feel the recovery.
This is why we need a decisive push for structural
reforms to boost current and potential growth over
the medium term,” she told the Council on
Foreign Relations, adding that good teamwork and
strong leadership will be needed.

Lagarde said the global economy will face in 2015
three major policy challenges that will require
decisions based on political courage, decisive
action, and truly multilateral thinking: boosting
growth and employment; achieving more inclusive,
shared growth; and attaining more sustainable,
balanced growth. She noted that these pivotal
issues are deeply interconnected and mutually
dependent.

“All are important, all demand strong
leadership, all require cooperation,” she
stated.

She said the drop in oil prices is a welcome shot
in the arm that boosts consumers’ purchasing
power in oil-importing countries, and the U.S.
economy should strengthen further this year,
largely due to more robust household spending.

But lower oil prices and U.S. growth are not a
cure for deep-seated weaknesses elsewhere, Lagarde
cautioned. “Too many countries are still weighed
down by the legacies of the financial crisis,
including high debt and high unemployment. Too
many companies and households keep cutting back on
investment and consumption today because they are
concerned about low growth in the future.”

Significant risks

Lagarde said world growth is still too low, too
brittle, and too lopsided, and stressed there are
significant risks to a global economic recovery.

These risks require a powerful policy mix that can
strengthen the recovery and provide better
employment perspectives for citizens worldwide,
Lagarde stated.

“Accommodative monetary policies remain
essential. Fiscal adjustment must be as growth-
and job-friendly as possible. And above all,
policymakers will need to finally step up
structural reforms,” Lagarde said.

“This economic mantra—support demand, growth,
and structural reforms—is not new, but now takes
on increased urgency. And it places increased
emphasis on political leadership.”

Test of cheaper oil
The immediate test for many policymakers is the
impact of lower oil prices, Lagarde observed. Not
so much for oil importers, for whom the windfall
provides an opportunity to strengthen their
macroeconomic frameworks and may help in
alleviating inflation pressures. By contrast, oil
exporters need to cushion the shock on their
economies.

In the euro area cheaper oil is contributing to a
further decline in inflation expectations, which
increases the risk of deflation and bolsters the
case for additional monetary stimulus. Most
importantly, Lagarde added, the drop in oil prices
also provides a golden opportunity to cut energy
subsidies and use the savings for more targeted
transfers to protect the poor.

‘Remove, revamp, unleash’
“2015 must be the year of action,” Lagarde
said. “This means removing deep-seated
distortions in labor and product markets; it means
revamping creaking infrastructures and building
new ones; it means pressing ahead with reforms in
education, health, and social safety nets. It also
means unleashing the economic power of women.”
She said infrastructure investment—where it is
carefully chosen and efficient— is a potential
game changer. Lagarde noted IMF research showing
that increased public infrastructure investment
raises output in the short term by boosting demand
and in the long term by raising the economy’s
productive capacity.

Another potential game changer is unleashing the
economic power of millions of women who are
currently locked out of the labor market.

“Excluding these women is not just morally
wrong, but it is bad economics,” Lagarde said.

Trade liberalization could help leverage gains
from structural reform, she stated. After years of
slowing growth in global trade, 2015 could be a
make-or-break year for negotiations on an
ambitious trade deal.

The Great Recession had shown that sustainable
economic growth was not feasible without a
sustainable financial sector, Lagarde observed,
adding it is therefore critical to complete the
agenda on financial sector reform.

Sustainable Development Goals
“There has been progress, especially on banking
regulation and—to a lesser extent—on
addressing too-important-to-fail financial
institutions,” she said.

“The big challenge now is to implement reforms
and improve the quality of supervision.”

Lagarde noted that in 2015 a major United Nations
conference will seek to adopt a new set of
Sustainable Development Goals, and global leaders
will also aim for a comprehensive climate change
deal that cuts carbon emissions.

Source - MyjoyOnline

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