Lagarde lays out roadmap to shape post-crisis world

Saturday, October 13, 2012
Tokyo: International Monetary Fund Managing Director Christine Lagarde called on Friday for greater global cooperation to put the world on a strong path to recovery and build on the huge demographic and technological changes taking place that are driving a shift in global economic power.

In a keynote speech at the plenary session of the IMF-World Bank 2012 Annual Meetings in Tokyo, Lagarde said the top priority was for the world to get beyond the current crisis and to restore sufficient growth to generate jobs for the millions of unemployed.

"There are big challenges as well. We must not get carried away. As you will have seen from our forecast, the global recovery is still too weak. Job prospects for untold millions are still too scarce. And, the gap between the rich and the poor is still way too big. There is a tough road ahead to transform our optimism, your optimism, my optimism into reality. But, it can be done," she said.

Getting stronger growth would also help tackle the huge debt overhang in advanced economies—the highest level since World War II.

Speaking at the modern Tokyo International Forum conference center, Lagarde told delegates from 188 countries that in many ways, Asia symbolized the future of the world, with its youth and dynamism.
 From the Arab countries to Africa, the world was going through rapid change, but also faced major challenges, said Lagarde.

 Ahead of the annual meetings, which bring together more than 10,000 delegates, journalists, members of civil society, and the private sector, the IMF released a gloomier picture of the global economy, saying it had marked down global growth to 3.3 percent this year and a still sluggish 3.6 percent in 2013.

 Lagarde outlined three milestones on the way ahead: getting beyond the crisis and restoring growth; completing reform of the financial sector; and addressing inequality and building inclusive growth.

Without restoring growth, she said it would be difficult to address the huge legacy of public debt—now averaging almost 11 percent of GDP for the advanced economies.

She said it was urgent to complete the agenda for financial sector reform: better regulation, better supervision, better resolution of cross-border entities, and better internal incentives in financial institutions.

"Many argue that those regulations, this additional layer of burdensome requirements are actually an unbearable cost on the industry. Well, somebody who doesn't have skin in the game – the IMF – has actually done a study of that. And that study shows that better regulation will indeed notch bank lending rates up, but relatively little. We also found out that increasing capital buffers to appropriate levels actually helps growth."

But, rejecting "unfettered globalization," she told delegates growth must be inclusive and benefit all, pointing to IMF research that shows less inequality is linked to greater macroeconomic stability and more sustainable growth.

"There is a tough road ahead to transform our optimism into reality, but it can be done," Lagarde stated. "The key now is to move from deliberation—talking about it—to action: moving on the policies we know are needed, and moving together on all fronts."

Turning to the role of the International Monetary Fund, Lagarde said the 188-member global institution is the premier forum for global economic cooperation. "While multilateral institutions were important in the past, they are even more important for our future," she declared.
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