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Central bankers need to do more to put the global economic recovery back on track, Christine Lagarde, managing director of the IMF, warned yesterday.
Speaking at a press briefing in Tokyo, she said that central banks had made many of the right decisions, but that more action was needed. “Where should we see action?” she asked. “Certainly in Europe and, more specifically, in the eurozone, which is still at this point the epicentre of the crisis, and where most urgent action is needed.”
She acknowledged that much has been done already, including the European Central Bank’s long-term refinancing operations and outright monetary transactions, as well as the eurozone members’ commitment to greater fiscal discipline and designing of a European banking supervision system.
“This is gradually happening, but more needs to happen and faster,” Lagarde said.
In the US, serious risks related to the fiscal cliff and the debt ceiling are becoming more threatening as the end of the year gets closer, she said, adding that here, too, decisive action is expected.
Lagarde noted that the IMF had lowered its forecasts for global economic growth, and that the biggest change had been the way the slowdown has spread to emerging markets, particularly in Asia.
She pointed out that one of the causes of the slow global recovery was the degree of uncertainty in many parts of the world. “There is a level of uncertainty which is hampering decision-makers from investing and from creating jobs,” she said.
The IMF head also described key policies that could help to anchor economic growth, including the completion of financial sector reforms.
Governments should also deal with the legacy of high debt, with credible medium-term strategies to reduce it from current levels — levels that have not been seen before in peacetime in many advanced economies, she said. The focus must be on creating the conditions for inclusive growth that creates jobs.
The world also needs to face up to the fundamental issue of global imbalances, and it need to be addressed today, she pointed out, because those imbalances are likely to widen again when growth picks up.
“We really want to, together with our members, go through what needs to be done, what action needs to be taken, in order to make sure that recovery is not just a little bounce, but it’s really here for the longer term and is sustainable,” she said.
When asked about the news that China’s top officials, including the central bank governor, have decided not to join the meetings in Tokyo, she said: “We have a lot of substantive issues to discuss, great debates, great seminars organised. I think they lose out by not attending the meeting, and they’ll be missing something great.”
Countries in this region are very important to the global economy, and the IMF hopes differences, however longstanding, can be resolved harmoniously and expeditiously, she said.
On a lighter note, she also pointed out that they will be missing Tokyo at its best. “The trees have the most beautiful colours you could think of.”
The relationship between China and Japan has been strained in recent months due to disagreements over islands in the East China Sea. According to the IMF, the deputy governor of the People’s Bank of China is schedule to speak on Sunday (October 14), on behalf of Zhou Xiaochuan, governor of the central bank.
Asked about her advice on the Chinese economy, Lagarde said the first advice she would give is to “be a partner in the global economy, full-fledged”. She also recommended the country focus on its efforts to encourage domestic consumption.
“The task of securing sustained recovery has become more complex,” she said about the global economy. “It involves multiple players and they are all playing a single game. But that game is becoming more and more complicated.”
Lagarde said that the IMF had a big agenda of its own as the annual meetings get under way, which includes new approaches to lending, surveillance and technical assistance. There would be active discussions of these issues with the IMF’s 188 member countries during the meetings, she said.
In a separate news conference yesterday, World Bank president Jim Yong Kim said that these are challenging times — food prices remain high and volatile, growth in high-income countries is weak and developing countries, which have been the engine of growth, will not be immune to the increased uncertainty in the global economy.
“The economic announcements emanating in recent weeks have been sobering,” he said.
“Our job at the World Bank Group now is to make sure the growth over the last five years that we’ve seen in developing countries in Africa and Latin America and Asia is not destroyed by further worsening in the situation.”
