Treffen von IWF und Weltbank endet mit erhöhter Angst über die globale Situation (LabNetAu)
SOUTHNEWS
No. 14, 15 October 2012
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IMF-World Bank meetings end with heightened anxiety on global situation
By Martin Khor
There were sobering messages on global economic prospects emerging
from the just-concluded 2012 meeting of the World Bank and
International Monetary Fund in Tokyo.
Developing countries’ Finance Ministers and Central Bank officials
voiced their concerns on the failure of developed countries to deal
with their economic situation and on the policy and political
paralysis preventing solutions.
At the IMF’s International Monetary and Financial Committee on Oct 13,
some of them voiced concerns on the spillover effects of policies
adopted by some developed countries, particularly their provision of
huge volumes of credit credit, the continuing European debt crisis,
and the looming threat of the United States’ “fiscal cliff”.
According to a report by Associated Press, China’s Central Bank deputy
governor said at the meeting that “a durable solution to the Euro area
crisis would provide a much-needed boost to global recovery”, and that
uncertainty over government debts in the United States and Japan was
slowing recovery and causing “costly spillover effects to the rest of
the world.”
Guido Mantega, Brazil’s Finance Minister, told the committee:
“Advanced countries should rethink their macroeconomic strategies and
avoid simultaneous fiscal contractions and the consequent
overburdening of monetary policies…In many advanced countries,
fiscal and structural policies are hampered by political paralysis.”
He also expressed concern over monetary easing in the United States
and other countries meant to encourage more bank lending, but that
some worry could destabilise markets while failing to stave off recession.
South Africa’s Finance Minister Pravin J. Gordhan said: “”We should
all be committed in our resolve to avoid a worst-case scenario where
strains in the euro area deepen, fiscal cliff and debt ceiling
problems in the United States are not resolved, and growth in emerging
market economies continues to decline.””
The IMF-World Bank meetings were held in the shadow of expectations of
deterioration in the global economic condition. The IMF cut its growth
projections for most major countries and said the “risks of a serious
global slowdown are alarmingly high” in its World Economic Outlook
released on the eve of the Tokyo meetings.
Global growth slowed from 5.1% in 2010 to 3.8% in 2011. For this year,
the latest IMF estimate is 3.3% global growth, with developed
countries barely growing by 1.3% while developing countries expand by
5.3%.
This 2012 forecast is optimistic as it assumes the United States and
Europe will resolve their problems in economic policymaking.
The IMF posed the key issue of whether the global economy is merely
facing just another temporary bout of turbulence, or whether the
slowdown will endure. It said the answer depends on whether the United
States and Europe can deal with their short-term challenges.
That is putting the issue blandly. The truth is that it is more
difficult today to get recovery going than it was in 2009 in the
aftermath of the financial meltdown.
At that time, there was a consensus among the major countries that
their collapsing economies had to be boosted through fiscal stimulus,
low interest rates and a massive supply of credit. The coordinated
actions led to the swift and sharp recovery of 2010.
The policy winds have changed in the past two years. Most developed
countries are now more concerned about cutting their budget deficits,
and have thus reversed their fiscal policy from stimulus to austerity.
Countries in the Eurozone that are heavily dependent on foreign loans,
and do not have the options of printing money or currency depreciation
because they have the common currency, have little choice but to cut
their public spending.
But even the United Kingdom which enjoys much more policy space, chose
drastic budget cuts that have now resulted in a recession.
During the IMF meeting last week, the raging debate on the wisdom of
demanding extreme austerity targets for Greece and potentially other
countries like Portugal and Spain in exchange for loans, broke out in
an open clash.
IMF chief Christine Lagarde said Greece should be given two additional
years to meet the drastic budget reduction targets that had been
imposed by its creditors (the EU, the European Central Bank and the
IMF itself). But the German Finance Minister strongly rebuked her,
indicating Germany’s insistence on Greece fulfilling the targets on
time as a condition for further loans.
Meanwhile, Greece is reeling from the spending cuts already made, with
GNP falling by 6% and unemployment shooting above 25%. The public mood
has reached boiling point, as evident from angry protests during
German leader Angela Merkel’s visit to Athens last week.
Europe will remain the epicentre of the global slowdown, with its
economy in recession this year and possibly next, even though its
crisis has eased with the European Central Bank’s intention to buy
government bonds of cash-strapped countries. Since the countries have
to adhere to strict austerity and other targets as conditions,
Europe’s economy will face contraction.
The United States by contrast has done better with growth of 1.8% in
2011 and a projected 2.2% this year, but unemployment remains.
However, it faces the “fiscal cliff” problem at the end of the year.
If the Republicans and Democrats are unable to overcome their
differences and arrive at a new budget deal, the package of tax and
spending cuts mandated by law will kick in by January next year, and
these measures are equivalent to reducing national income by 4%. The
implications for the global economy are enormous.
The major developing countries are also slowing down significantly.
The latest IMF forecast is of GNP growth in 2012 for China of 7.8%
(from 10.4% in 2010), India 4.9% (10.1% in 2010) and Brazil 1.5% (7.5%
in 2010).
The developing countries have especially been affected by the sharp
decline of exports to Europe.
Thus, the three main concerns about the current global economy are the
continuing financial crisis and a severe austerity response in Europe,
the confrontational politics and probably greater austerity measures
in the United States, and the cooling of the major developing
countries’ economies.
Another setback was the missing of the deadline to resolve the issue
of altering the quotas of the IMF with the aim of providing developing
countries with a higher overall share, to improve their say over the
policies of the institution. The Tokyo meeting was supposed to settle
the question but was unable to come to a decision.
The missing of the deadline was criticised by the G24 developing
country grouping. In a communique issued by the G24 after its
Ministerial meeting in Tokyo on 11 October (chaired by the Indian
Finance Minister P. Chidambaram) the Ministers stated: “We note with
concern that the 2010 IMF quota and governance reforms did not achieve
the required voting power majority for approval by the deadline set of
the annual meetings of October 2012. This can result in serious
reputational risk for the Fund.”
ends
Author: Martin Khor is the executive director of the South centre.
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