International Monetary Fund (IMF) Managing Director Christine Lagarde outlined long-term trends facing the global economy and implications for the Fund in a keynote speech at the plenary session of the IMF-World Bank 2013 meetings.
Even while grappling with a range of difficult transitions in the aftermath of the global financial crisis, Lagarde pointed to the longer-term trends and “frontier risks” facing the IMF’s 188 countries.
“Over the next generation, the rate and reach of change is likely to be even greater than before. With that, the needs of our members will change. So too must the Fund.” She mapped out three milestones for the road ahead including a more multi-polar global economy.
In the next decade the share of emerging and developing economies in global GDP will increase from about half to nearly two-thirds, Lagarde stated, setting the stage for a world where economic power will be far more dispersed across all regions.
The IMF must mirror this shift and be more representative, Lagarde said. The institution is already moving in this direction, Lagarde added, referring the 2010 governance reforms, which once implemented, would provide a platform on which to build further.
Representation is also about how the IMF engages with its members, Lagarde stressed. “To be their trusted advisor, our analysis and advice must meet major tests: it must be of the highest quality; it must be objective; and it must be even-handed.”
The IMF chief also envisaged a more financially integrated global economy.
“As emerging and developing countries grow and converge, their financial interconnections will become deeper and more complex. Deeper integration will fuel growth, but it will not be without risk,” Lagarde warned. “Experience teaches us a vital lesson: greater financial integration raises the probability and size of financial crises,” she stated.
Lagarde underlined other long-term trends—demographic shifts, income inequality, and environmental sustainability—that will affect growth and stability. Where these issues affect the macroeconomic health of the IMF’s member countries, they must be “part of our work,” she said. In all these new areas of risk, Lagarde said that it would be important for the IMF to cooperate more effectively with other institutions and help to focus global attention on specific issues.
Lagarde gave the example of how the IMF’s fiscal advice could help countries cope with proper carbon pricing. She also cited a new IMF study that showed that enabling women to participate in the workforce could be an “economic game changer,” with substantial increases in per capita incomes in countries all over the world.
At the same time, she said, the Fund’s comparative advantage is to bring its macro-critical perspective to bear. “Maintaining that focus is what, above all, has made the IMF an effective institution in the past,” Lagarde said. “Retaining that focus will enable us to serve our membership effectively in the future.”
IMF chief sees multi-polar global economy, deeper financial integration
