Published October 14, 2012
TOKYO – Meetings of global financial chiefs over the weekend ended with a clearer picture of what Europe, the United States and emerging countries need to do to prevent a deep downturn in the world economy, a senior IMF official said on Sunday.
IMF Deputy Managing Director Nemat "Minouche" Shafik told Reuters the next six months were critical for governments to act.
"The challenge now is the politics of implementation," Shafik said in an interview. "That is the same challenge in Europe, in the U.S. and in emerging markets."
The meetings of the International Monetary Fund and World Bank sounded a clear warning that world growth was slowing under the weight of substantial economic uncertainties.
The uncertainty stems from how quickly European leaders will act to authorize a bond-buying scheme by European Central Bank and whether the United States will overcome political divides to avoid a "fiscal cliff" of higher taxes and deep government spending cuts at the start of next year.
The coming 12 months are also rife with political questions whose answers will determine whether economic commitments to address the crisis will be kept.
Germany goes to the polls next year, while U.S. presidential elections and a once-a-decade leadership change in China are weeks away. European Parliament elections take place in June 2014.
"There are political windows of opportunity in every country at some point of time," Shafik said. "Because we know what needs to be done, when those political windows of opportunity open, policymakers need to jump through them very quickly and have those measures ready."
CONSTRAINTS AND POLICY STEPS
For now, countries have a clearer understanding of each others' constraints and policy steps each of them need to take.
"There is a consensus over what is needed in terms of the ingredients of a solution to the euro zone, which are all on the table. What needs to happen in the U.S. is clear.
"The emerging market story is more complicated, because what needs to happen in China is different than what needs to happen in Brazil and India," she said.
Shafik said the IMF had a vital role to play to ensure that countries implement pledges. The IMF has produced a policy to-do list for member countries and for itself over the next six months.
"For us it is about collective accountability," she said.
The weekend was dominated by remarks by IMF Managing Director Christine Lagarde, who argued that debt-burdened countries like Greece, Spain and Portugal needed more time to meet deficit-cutting goals.
While the IMF has advocated this for some time, Lagarde struck a more forceful message about the dangers of reducing deficits too quickly, especially in countries struggling with sluggish growth.
Europe's paymaster, Germany, however, warned against actions in the euro zone that could undermine credibility of deficit-cutting steps.
The IMF's message stems from research released last week showing that aggressive fiscal consolidation crimps growth more sharply than previously thought.
"It is our job to speak the inconvenient truths when they need to be spoken and put the numbers on the table and make objective recommendations as to what needs to be done," Shafik said. "We are not always listened to but if we bang on enough sometimes that moves things, so we do have a role to play."
(Editing by Ron Popeski)