Special high-level meeting of ECOSOC with the World Bank, IMF, WTO and UNCTAD Statement by Mr. Calvin McDonald, Deputy Secretary of the IMF and Acting Secretary of the International Monetary and Financial Committee New York, April 14, 2014 Preliminary Remarks Good afternoon. President Sajdik, thank you for your invitation to join this high-level meeting. You have heard my colleague, Mr. Helbling, provide an update on the World Economic Outlook. I would like to focus my remarks on the IMF s role in supporting its membership in a global economy characterized by interconnectedness, spillovers, and spillbacks or feedback loops from country policies. Our Managing Director, Christine Lagarde, outlined these points in her Global Policy Agenda presented over the weekend in Washington, during our Spring Meetings, and the discussions of the International Monetary and Financial Committee (IMFC) focused on these challenges. As background, you would have seen the IMFC Communiqué. Without repeating the earlier points made by Mr. Helbling on the WEO, let me just recap a few headlines before talking about the role of the Fund in supporting its membership.
2 State of the Global Economy Global activity is strengthening, but the recovery is uneven and remains too weak for comfort, with geopolitical tensions injecting new concerns. Economic activity in advanced economies is improving, albeit at varying speeds. Growth is strongest in the United States, supported by robust private demand and an easing of the short-term fiscal brake. Even so, it will be critical to continue to carefully manage the gradual withdrawal of unconventional monetary support by the Federal Reserve, and to put in place a durable medium-term fiscal plan. In the euro area, a modest recovery is taking hold stronger in the core but weaker in the South, and there may be room for more monetary easing. In Japan, activity is seeing a boost from the monetary "arrow" of Abenomics. For growth to be sustained, the remaining two policy "arrows" structural reforms and a concrete medium-term fiscal plan also need to be fired. Activity in emerging market economies, which has been slowing, picked up slightly in the latter part of 2013. Stronger external demand from advanced economies will provide some support for growth going forward, but tighter
3 financial conditions and higher market volatility are expected to weigh on domestic demand. Many low-income countries (LICs) too have been a bright spot. After Asia, Sub-Saharan Africa has been the most dynamic region in the world during the crisis. This should continue, although in several countries rapid debt accumulation and erosion of fiscal space will need to be watched. Turning to the Arab Countries in Transition (ACTs), their prospects are held back by the difficult socio-political context. Those countries striving to advance much-needed reforms deserve firm support from the international community. In sum, recovery is taking hold but is too slow and it faces several obstacles along the road. Global growth is projected to improve further in 2014 and 2015, although remaining below past trends. The costs of continued sluggish growth are clear there will only be modest income gains and gradual reductions in unemployment. The key challenge remains transforming a modest and fragile recovery into more rapid, balanced, and sustainable growth. Countries need to do more to boost growth through structural reforms and continued accommodative monetary policies. How Will the IMF Support Its Membership? On monetary policies, the Fund will continue to analyze the implications of unwinding extraordinary monetary support by major central banks, and assist members in developing responses to a potentially protracted increase
4 in capital flow and asset price volatility, including macroprudential policies. In this context, the full range of financial facilities, including precautionary instruments, will remain available to members facing actual or potential market pressures. On fiscal policy, we will continue to work on policy options to support member countries in calibrating fiscal packages to reduce public debt overhangs, support potential growth, and mitigate policy uncertainty. In addition, the Fund will finalize operational reforms to its debt limits policy, advance reform options on sovereign debt restructuring, and contribute to the global debate on international tax spillovers. We will also provide policy advice on macro-critical issues related to aging, environmental changes, and inequality. On financial sector policies, we will continue to assess the global impact of regulatory fragmentation and extra-territoriality, advance the agenda on cross-border resolution regimes, and undertake with the Financial Stability Board (FSB) and standard setters work on shadow banking systems, including their determinants, impact on financial stability, and the role of policymakers. The Fund will also advise on potential macro-financial risks and policy responses; and continue to address data gaps, including through the G-20 Data Gaps Initiative and implementation of the Special Data Dissemination Standard Plus. On structural reforms, a priority will be to undertake further analytical work on the importance of financial deepening in supporting growth, the impact of
5 regulatory reforms on long-term financing for infrastructure and SMEs (jointly with the FSB, World Bank and OECD), and policy options for dealing with the corporate debt overhang in Europe. For ACTs, the analytical focus would be on medium-term growth prospects, including benefits of economic diversification, as well as the link between revenue mobilization, growth and equity. For LICs, work will center on ways to broaden economic growth and putting in place policy frameworks that enhance stability through structural transformation and diversification. In this context, two conferences co-hosted by the Fund in Maputo and Amman will discuss challenges faced by Sub-Saharan Africa and ACTs respectively, and explore policy strategies to foster inclusive growth. On policy coordination and coherence, the Fund will continue to stress the need for source countries to internalize their policy spillovers and spillbacks. This will be done through integrated surveillance (including cluster-based Article IV consultations), the Spillover Report, and analytical work to strengthen the understanding of feedback channels. Work will also focus on refining the external sector assessment methodology and better integrating the annual Spillover and Pilot External Sector reports, and staff s vulnerability analysis with other surveillance outputs. The Fund will continue to emphasize the need for further actions by surplus and deficit countries to ensure that the appreciable declines in external and internal balances are sustained.
6 Finally, implementation of quota and governance reforms remains an absolute priority. The IMF remains fully committed to support the implementation of the 2010 reforms and to finalize the 15th General Review of Quotas. Almost the entire membership has approved the 2010 reforms aimed at strengthening the IMF s resources and better representing the changing dynamics amongst its shareholders. In this regard, the IMF urges the United States to ratify these reforms at the earliest opportunity. Concluding Remarks To conclude, the global economy is turning the corner, but a lot remains to be done. The just concluded Spring Meetings in Washington provided us with renewed impetus and strategic direction, but to successfully tackle the global challenges we have to continue working together in a coherent, cooperative, and coordinated manner. Thank you.