senior fellow, Centre for International Governance Innovation
The International Monetary Fund (IMF) and World Bank Group’s annual meeting — the first to take place in Latin America since 1967 — is being held this week in Peru.
Kevin Carmichael, a business journalist and current senior fellow with the Centre for International Governance Innovation (CIGI), spoke with OpenCanada from Lima on Thursday, touching on the most pressing economic challenges — stagnant growth, the refugee crisis, climate change, and, of course, China.
1. What’s top of the agenda this year?
My own personal interest does align with the top two or three issues here and that’s around the need for governments to play a significantly stronger role in the attempt to turn around the global economy that, for the last number of years, has really been left entirely to the central bank.
You see the IMF and its latest World Economic Outlook report stating in the most specific terms I have seen the source of countries that should be using fiscal policy more aggressively. Up until now, they said, generally, ‘if you have fiscal space, you could do your bit, don’t worry about running deficit you can get away with it if you invest smartly…’
What you saw this week, the IMF added more layers to this, they said ‘OK those of you with fiscal space should be spending more and those of you that are dependent on external demands should be spending more.’ The message is that we’re at the risk of stagnation here. We’re not talking about global recession, but there’s a risk of stagnating with this sort of disappointingly slow growth around three, three-and-a-half percent and that’s barely enough to stay above water.
So the message from the IMF is essentially that if you’re waiting for someone else to get this economy going, well, you should stop waiting and take matters into your own hands. And of course this applies to countries like Canada — I’ve been writing about this for a better part of a year on how this treatment of balanced budgets is a ‘third rail’; it’s really limiting the economy’s potential in my opinion as the possibility is causing longer-term damage. This applies to Germany. There are a handful of advanced economies that have the room to do a little more to help global growth that are not doing so because of domestic, political positions taken on the value attached to tight fiscal policy.
2. What conversations are happening as a result of events over the past year — Greece, the SDGS, the downturn in the Chinese economy?
Earlier this year, Greece was the focal point, the dominant issue, because of what that meant for global stability. I don’t want to say it has gone away, but nobody’s really talking about it. I mean it’s there because the situation is not totally resolved but I sense that given the results of the election that they see that situation as being fixed, and there is a certain level of confidence that Europe has finally put the worst behind it. So at least now they’re really getting around to the hard business of rebuilding all the damage that has been done.
To me, the issue that looms over everything is the issue we were just discussing — the feeling of stagnation of the global economy, the bewilderment of why that’s the case, given all that’s been done to try to boost the global economy in these past years. There is a school of thought that says nothing can be done, you just have to muddle through, but then you have the Larry Summers school arguing that policymakers really need to go at this. So we might get a sense of how seriously the leading countries are taking this, if there is any shift in the seriousness with which the governments themselves are taking this situation.
They also talked about the SDGs. It still may be early days for it to trump concerns of the economy but it is positive to see that it’s there at least. [IMF head Christine Lagarde], in a slight pushback to the notion that the IMF was casting this dark shadow over the global economy, said, yes, things are not great but she actually was finding some ray of hope in what she was seeing as new signs of global cooperation. She mentioned the SDGs, she mentioned what she’s seeing happening around climate change, around the TPP.
What’s interesting to me is to see refugees enter into the discussion. You get to these global financial meetings and the softer issues can get shoved to the side. But Jim Kim of the World Bank revealed that he’s been working hard with some of the European leaders — Merkel and Cameron — about how they can get creative to help these people. He talked about a couple of things: finding the money to support potential entrepreneurs among refugees, and using World Bank resources to fund their efforts when domestic budgets might not allow individual governments to do so.
He also mentioned the World Bank’s funding is tied to a country’s population, so he pointed out that limits the help that the World Bank can provide to countries like Jordan and Turkey which of course have seen their unofficial populations increase dramatically. But if they follow the World Bank lending rules to the letter, they are limited in what they can do. So it was interesting to me to see there are some discussions being had on what can be done about the situation.
3. What impact does the host country or region have at these meetings? What discussions are being had around Latin American economies?
There’s lots of discussion around Latin America that I haven’t been able to get to. There is a focus on Latin America — that’s natural for these meetings when they leave Washington and are hosted elsewhere — but I can say that the focus is on trying to highlight the good Latin Americans countries… There are two groups of Latin American countries, one group like Mexico and Peru, Chile, and Colombia, that stick pretty closely to IMF doctrine when it comes to setting economic policy. And there’s a group that does its own thing. So there’s an attempt to highlight the good actors and point out the countries that are struggling right now — that’s Brazil and that’s Venezuela and Argentina, although Argentina always seems to be a special case. So it’s kind of trying to set a tone here that, ‘Look we’re all struggling, but you could be doing a lot better.’
4. What’s the IMF and World Bank’s role at COP21?
I think the IMF is asserting itself on this debate. I don’t know enough about the climate change issue to know what specifically the IMF can do but I do know that it and the World Bank are taking the climate change push very seriously and there have been lots of panels on climate change. Both Lagarde and Kim spoke of it this morning, and I saw a separate session yesterday underlying the need to get serious about these issues. So I think you’ll find them play a role and we might see them ensure that this debate stays live, that it goes in a positive direction, and that their members aren’t allowed to ignore their responsibilities.
5. What would make this week a success?
If leading policymakers can deliver a message that would instill a certain level of confidence in the global investing community, showing that governments really are serious about stepping up their engagement, or if we got a firmer sense from the G20 that they are serious about this and perhaps Lagarde or the head of the IMFC or some combination of these types of people over the next few days are able to say something that sounds different than what we’ve heard to date, that would be positive. That might be the most that can be expected.
We’re not really at the stage to anticipate specific policy like perhaps we were back in the depths of the financial crisis. But we could see some shifts in rhetoric that might leave people a little more relieved. Along these lines, what would be important is if we ended these meetings and we were better able to gauge what is going on in China. We haven’t talked about China yet. We have the global economy concerns, which then breaks two ways — questions about what the FED is going to do, when it’s going to start raising interest rates, and then what the hell is going on in China. There’s lot of reason to think that things in China are not as bad as the volatility we’ve been seeing global markets suggest. So if together all the people that are here were able to send a message that they aren’t particularly concerned about what is going on in China, that they are generally confident in what Beijing is doing, I think that will make a big difference too. We will have a sense one way or the other how much we need to worry about China.