IMF, World Bank Meetings: Finance Ministers Call for Greater Cooperation on Trade, "Shared Challenges"
The 2018 Annual Meetings of the International Monetary Fund (IMF) and World Bank Group (WBG) wrapped up in Bali, Indonesia, this past weekend, bringing to a close several days of meetings where ministers and other high-level officials debated the future of fiscal and monetary policy, development, and the need for greater collaboration to boost “confidence in international trade.”
The high-level event, which brings together finance ministers, development ministers, and central bank governors from the two organisations’ member countries, came at a milestone moment, marking ten years after the 2008 financial crisis.
Similar to several other multinational assemblies such as the recent United Nations General Assembly in New York, this year’s IMF-WBG Annual Meeting focused heavily on discussions related to trade, in light of growing tensions among some major economies that many fear could have a ripple effect across the global economy, curbing expectations for economic and trade growth. (See Bridges Weekly, 4 October 2018 and 11 October 2018)
In the Annual Meetings’ opening plenary, IMF Managing Director Christine Lagarde called for countries to consider a “new multilateralism,” which she described as a “more inclusive, people-centred, and results-oriented” international system that would facilitate cooperation. This would include, for example, both resolving current trade disputes and the irritants that caused them, as well as making the system fit for purpose for tackling “21st century challenges,” such as “inequality, technology, and sustainability.”
The communiqué released after the 38th Meeting of the International Monetary and Financial Committee (IMFC) on 13 October, chaired by Governor of the South African Reserve Bank Lesetja Kganyago, affirmed the value of addressing trade tensions and improving the existing system. Notably, the section on trade used language that echoed, to a degree, that of G20 trade ministers last month when they met in Mar del Plata, Argentina. (See Bridges Weekly, 20 September 2018)
“We recognise the need to continue to step up dialogue and actions to mitigate risks and enhance confidence in international trade, including on ways to improve the WTO to face current and future challenges. We acknowledge that free, fair, and mutually beneficial goods and services trade and investment are key engines for growth and job creation,” the IMFC document stated.
The IMFC is a steering body for the IMF, made up of 24 members that are part of the wider organisational membership and whose statements are meant to give direction to the Washington-based international financial institution.
Examining the health of the global economy
The links between market health and global trade were frequently mentioned throughout the meetings by ministers, particularly in light of new IMF and WTO figures that suggest that economic growth is plateauing, and could face some significant challenges down the line. (See Bridges Weekly, 11 October 2018)
The IMFC communiqué referred directly to that situation, noting that while “the global expansion remains strong,” projections suggest that “the recovery is increasingly uneven, and some of the previously identified risks have partially materialised.”
“Policy uncertainty, historically high debt levels, rising financial vulnerabilities, and limited policy space could further undermine confidence and growth prospects,” the IMFC said.
The IMFC document also noted that the “window of opportunity” for undertaking the policy reforms necessary to ensure the global expansion continues is becoming increasingly slim, outlining recommendations in areas such as fiscal and monetary policy, as well as undertaking “structural reforms” that could have benefits for “lifting potential growth and employment.”
The IMFC also flagged the importance of making sure the global economy’s troubles, particularly when it comes to rising debt burdens in low-income countries, do not threaten the achievement of the 2030 Agenda and related Sustainable Development Goals (SDGs), including shared international objectives related to climate action and migration.
Similar concerns were also raised by the Development Committee, a joint IMF-World Bank body that advises both agencies on specific development issues. “Downside risks to global growth have intensified for multiple reasons,” the committee warned, while also highlighting “the crucial role of international trade for economic growth, job creation, and sustainable development.”
Robin Brooks, the chief economist at the Institute of International Finance, which describes itself as “the global association of the financial industry,” pointed out that US-China ties were at the forefront of officials’ concerns this past weekend in Bali. “There’s really only one discussion that’s happening here, in earnest [...] And that is basically the intensity of the trade dispute between the US and China and how bad that will get – how prolonged and how pernicious,” he told the Bloomberg news agency.
IMF Chief Economist Maurice Obstfeld, who is wrapping up his time in that role, similarly noted that the increasing use of tariffs by the two major powers were influencing medium-term views on the global economy’s health. “Notwithstanding the present demand momentum, we have downgraded our 2019 US growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China’s retaliation,” he said in an IMF blog post.
For example, looking more specifically at the Asia-Pacific region, the IMF’s Regional Economic Outlook predicts slowing growth levels due to factors such as the current trade climate, along with “slowing momentum in China” and other economic dynamics. Demographic challenges, such as aging populations, could also pose particular challenges for some Asian countries, among them Japan, while the region is also needing to prepare for the sea change posed by the increasing digitalised regional and global economy.
“If tariffs spiral upward and economies slip toward autarky, global growth would take a substantial hit, and Asia – which already needs to rebalance its trade-driven growth model given weaker medium-term prospects in advanced economies – would be vulnerable,” the report states.
Various officials stressed the value of cooperative approaches going forward, and the importance of forums such as these for bringing country representatives together to tackle issues of mutual concern.
“I don’t underestimate meetings like this, although it is often hard to communicate these things easily. But if we don’t participate and we don’t present our actual problems, each country will go in their own direction and this can create danger,” said Indonesian Finance Minister Sri Mulyani Indrawati in comments to Reuters.
“Each country basically cares for its own domestic problems before looking after the world’s, but if we communicate often, people will know that one country’s policy can have a spillover dimension,” she added, referring also to her former experience as a former World Bank official.
Several other meetings took place in Bali last week on the margins of this year’s IMF-WBG Annual Meetings, such as the Xblockchain summit addressing international wealth transfers and financial inclusion; the Indonesia State-Owned Enterprises and Infrastructure Investment Forum; and a meeting between leaders of the Association of Southeast Asian Nations in which the group reaffirmed its commitment to open trade.
The next two Annual Meetings will be held in Washington, while the 2021 Annual Meetings will take place in Marrakech, Morocco.
ICTSD reporting; “IMF World Bank: What the economic outlook holds for Asia,” BBC NEWS, 15 October 2018; “Tremors Rattling World Economy: Takeaways from IMF Talks in Bali,” BLOOMBERG, 14 October 2018, “IMF cuts world economic growth forecasts as import tariffs, emerging market issues bite,” REUTERS, 8 October 2018; “Indonesia to press for policy coordination at IMF-World Bank meetings,” REUTERS, 8 October 2018.