Officials Call for "Forceful, Balanced" Policy Mix at IMF-World Bank Meet
With downside risks to the global economy on the rise and growth still sluggish, countries need “to buttress confidence” in their respective policies and put in place a “more forceful and balanced policy mix,” said finance ministers and central bank chiefs on Saturday 16 April in Washington.
Finance, central bank, and development officials from nearly 200 nations met in the US capital city from 12-17 April for the Spring Meetings of the World Bank Group and International Monetary Fund (IMF).
This year’s meet, however, was held against a worrisome backdrop of reduced economic and trade growth prospects, global threats ranging from climate change to pandemics to the refugee crisis, and the possibility of a UK exit from the European Union. (See Bridges Weekly, 14 April 2016)
IMFC policy recommendations
The Spring Meetings of the two Washington-based institutions involve a series of gatherings at various levels – ministerial discussions, seminars, regional briefings – as well as meetings of key committees for the organisations.
Both the International Monetary and Financial Committee (IMFC), which is the IMF’s policy steering body, as well as the joint IMF-World Bank Development Committee, which advises on key development issues, meet during both the Spring Meetings and in the Annual Meetings, the latter of which is held in autumn.
The IMFC, chaired by the Governor of the Bank of Mexico, Agustín Carstens, outlined a series of recommendations for a policy response that will help mitigate some of the current risks facing the global economy.
“We reinforce our commitment to strong, sustainable, inclusive, job-rich, and more balanced global growth,” said the IMFC communiqué. “To achieve this, we will employ a more forceful and balanced policy mix.”
To do so, the committee said, all countries should employ “growth-friendly fiscal policy,” while advanced economies should carry on with accommodative monetary policy – specifically in instances of below-target inflation and output gaps, “consistent with central banks’ mandates and mindful of financial stability risks.”
“Monetary policy by itself cannot achieve balanced and sustainable growth, and hence must be accompanied by other supportive policies,” the IMFC said. Regarding emerging economies, these would need to use monetary policy in response to the effect of “weak currencies” on inflation.
The committee also called for moving forward on structural reform, as well as boosting global cooperation in areas ranging from “reinvigorating global trade integration” to addressing challenges that, while non-economic in their source, such as the refugee crisis, could have serious implications.
They also reaffirmed past pledges “to refrain from all forms of protectionism and competitive devaluations, and to allow exchange rates to respond to changing fundamentals.”
Development Committee warns against forced displacement
At the opening press conference of the Spring Meetings, World Bank President Jim Yong Kim reminded reporters of last year’s estimate that the percentage of those people in extreme poverty worldwide was slated to drop to under 10 percent by 2015.
“Today, roughly 700 million people live in extreme poverty – a reduction of more than one billion people than 15 years ago,” he said.
“But the weakening global economy threatens our progress toward ending extreme poverty by 2030,” he added, noting that only a handful of “bright spots” remain in the current global economy, such as the US and India.
Furthermore, the World Bank chief warned of other challenges such as forced displacement, climate change, and pandemics, and noted his institution’s efforts in these areas, which “affect all of us.”
In its communiqué, the Development Committee took up several of the themes raised by Kim in his press remarks and recent speeches, with officials noting among other concerns the harsh impact from millions of people being displaced as a result of fragility and conflict.
“We look forward to [World Bank Group] and IMF action in this area, within their respective mandates and in partnership with humanitarian and other actors, to mitigate the vulnerabilities of forcibly displaced persons, to help host communities manage shocks, and to tackle the root causes of forced displacement,” the committee said.
Along with calling upon the international community to help people in these situations, often living below the poverty line, the communiqué notes the “sacrifices and generosity of host countries and the lack of adequate instruments to support them.”
SDGs, private sector, climate change
Coming less than a year since the Sustainable Development Goals and 2030 Development Agenda were adopted in New York, the communiqué stresses that 2016 will be key for beginning its implementation. (See Bridges Weekly, 1 October 2015)
To that end, the Development Committee calls on the IMF and World Bank Group, as well as multilateral development banks and the UN to work together in assisting developing countries as they endeavour to meet these goals – particularly in the poor economic growth context and drops in private capital.
Furthermore, the officials stress the importance of private sector involvement in meeting development goals, as well as calling for achieving gender equality and highlighting the value evidence-based development practices.
The committee also noted the Bank’s Climate Change Action Plan, adopted earlier this month, and urged both the World Bank Group and the IMF to ramp up their efforts to help those countries most at risk to the negative effects of climate change, specifically in terms of building resilience.
Carbon pricing coalition calls for “global goals”
On the margins of the IMF-World Bank event was the first meeting of the Carbon Pricing Leadership Coalition (CPLC), a group that is co-chaired by Ségolène Royal, France’s Minister of Ecology, Sustainable Development, and Energy, and Feike Sijbesma, who is the CEO of the Dutch multinational Royal DSM.
The coalition was formally launched last December at the UN Framework Convention on Climate Change’s (UNFCCC) Twenty-first Conference of the Parties (COP21) in Paris, France.
“This movement needs to rely on three principles: a price that is high enough to change behaviours; a price that is stable and predictable to give economic and financial actors the visibility they need; and a price that is coordinated, such that it is an instrument of cohesion, not of competition,” said Royal.
After the meeting, the two co-chairs released a communiqué which outlined plans for action by the coalition. This includes calling in favour of an “orderly transition away from emissions-intensive economic development and high-carbon energy sources, including – as a priority – through removal of fossil fuel subsidies and the use of carbon pricing.”
The group also backed the idea of establishing “global goals” that would cover emissions using “meaningful carbon pricing systems,” arguing that doing so could help fuel “collective ambition” in the decade ahead.
Various other pledges were included on the sharing of information and of building support for carbon pricing, with a view of making such schemes more attractive to other governments.
The event in Washington, while on the sidelines of the Spring Meetings, had in attendance both IMF Managing Director Christine Lagarde and World Bank President Jim Yong Kim, as well as UN Secretary General Ban Ki-moon and top environment and finance government officials.
The meeting also had significant engagement from the private sector, with the CPLC noting the attendance of various CEOs from major companies.
“The growing success and advocacy of the Carbon Pricing Leadership Coalition signals clear momentum around the world to put a price on carbon,” said World Bank President Kim.