WASHINGTON: Finance chiefs from around the world were warned Thursday to get their houses in order while the global economy is strong and be ready for possible shocks in the future.
World Bank President Jim Yong Kim and International Monetary Fund Managing Director Christine Lagarde said that countries must address their mounting debts and deepening inequalities now, before possible setbacks that could come as the era of cheap money nears an end.
That includes lessening sovereign borrowing and their dependence on often fickle flows of portfolio capital.
But it also means recognizing the potential upheaval that comes with the rapid changes in technology that can quickly turn competitive industries into also-rans.
“After several years of disappointing growth, the global economy has begun to accelerate,” Kim said at the opening of the annual IMF-World Bank meetings in Washington.
“Trade is picking up, but investment remains weak. We’re concerned that risks such as a rise in protectionism, policy uncertainty, or possible financial market turbulence could derail this fragile recovery.”
“Countries need to build resilience against the overlapping challenges we face today,” he added, pointing to climate change, famine and the natural disasters like hurricanes which have wrecked economies across the Caribbean.
– ‘Don’t be complacent’ –
Lagarde said that even though the IMF has just raised its estimates for global economic growth — to a healthy 3.6 percent this year and 3.7 percent in 2018 — “it is not time to be complacent.”
“It is time to take those policy decisions that will actually enable more people and more countries to benefit from that recovery that should be made sustainable,” she said.
“That is the question that we will put to the policymakers, the finance ministers, and the governors of central banks who will be attending the meetings.”
Lagarde said that despite the now nearly fully-fledged recovery from the financial crisis that erupted in 2008, 47 countries still experienced negative growth last year, many of them small and fragile economies.
She said inequality, the gap between the rich and the poor, was in particular need of tackling.
“Far too many people across all types of economies are seeing their aspirations limited by the impact of technologies and the repercussions of excessive income inequality,” Lagarde.
As a result, political tensions are spiking and skepticism is rising about the benefits of the kind of globalization and liberalizing trade that the IMF and World Bank support.
– Lagarde: close the gender gap –
Asked whether she thought that raising taxes on the wealthy was the preferred approach, Lagarde said she disagreed, pointing instead to the need to close the gender gap.
“The most efficient way to reduce the inequalities would be to actually close the gender gap between men and women. And that is a no-brainer,” she said.
“Whether it is access to the labor market, whether it is access to finance, whether it’s the gender gap in terms of compensation, that would achieve a lot in order to reduce inequalities. And that applies across the world.”
According to reports the United States, the Bank’s largest shareholder, has not yet supported the move.
US President Donald Trump has been a critic of the Bank and other multilateral institutions as he presses forward on his “America First” agenda.
Kim said he was “extremely optimistic” that a capital hike would be agreed.
“We have been arguing that we need a capital increase just because of the demand,” Kim said.
“The US is now a part of the discussions.”