Leading global financial officials on Saturday pledged faster action to boost growth and job creation in the developed world, amid deepening concern that advanced nations have become too reliant on cheap money and loose central bank policies to sustain their economies.
The 24 members of the International Monetary and Financial Committee, a collection of finance ministers and other top officials who oversee the International Monetary Fund, had “a meeting of the minds” that the current tepid economic recovery was at risk without faster action, said IMFC chairman Tharman Shanmugaratnam, the finance minister of Singapore.
“We need to act decisively to nurture a sustainable recovery,” the IMFC said in a communique closing spring meetings of the IMF and World Bank.
Shanmugaratnam, whose trade-dependent nation is easily buffeted by world economic events, said the lack of clear fiscal plans in the United States and the euro zone’s ongoing troubles have sapped economic confidence and kept businesses and households from spending and investing.
“There is a very strong desire to see a focus on getting growth back to normal,” he said.
The measures encouraged by the IMFC would involve stepped-up efforts in Europe to complete initiatives such as creation of a banking union; action in Italy, France and elsewhere on changes in labor laws; and agreement in the United States to raise the debt ceiling in the short run and cut entitlement spending in the future.
In a separate IMF document, Germany, the euro zone’s main economic power and one of its few fiscally secure nations, was cited by name as needing to boost spending to support growth throughout the region — a step the country has resisted as bad for its own economy and likely ineffective in helping others.
Separately, a key World Bank oversight group endorsed President Jim Yong Kim’s broad goal of virtually eliminating extreme poverty by 2030 — a target that Kim says is within reach given current world trends but which will require focused work in conflict-ridden states and other deep pockets of deprivation. The poverty goal is part of a retuning of the bank that also includes emphasis on building the global middle class through programs that try to boost incomes for the bottom 40 percent of the world’s population.
“This is a historic moment for the institution and for the world,” Kim said. “We are no longer dreaming of a world free of poverty. We have set an expiration date.”
Kim has said he will produce a detailed strategic plan by October.
The statement from the IMFC, whose members include Treasury Secretary Jack Lew, comes amid a sense that policymakers have bogged down in making changes that they acknowledge are necessary for the health of their nations and the world economy but which require tough political choices.
In the interim, central banks in the United States, Europe, Britain and Japan have stepped in with a variety of efforts to maintain a semblance of economic growth.
What were begun as emergency measures, however, have now become the norm. There is concern among developing nations in particular that the efforts are having less and less impact on joblessness and growth and may be setting the stage for future problems if the flood of liquidity distorts exchange rates or asset prices around the world.
So far, organizations such as the IMF have signed off on actions taken by the Federal Reserve, the Bank of England, the European Central Bank and, most recently, the Bank of Japan. But they’ve also stepped up the pressure for political officials to make decisions that will clear the way to end that reliance on central banks.
In the meantime, the IMFC recognized that economies coping with the effects of the major nations’ policies may need to act on their own — by using capital controls, for example, to regulate the flow of foreign money into and out of their nations. That is something the IMF has traditionally resisted, but now considers an appropriate tool for developing nations in some circumstances.