Political Economy of Structural Reforms
The panelists concurred with the importance and urgency of implementing structural reforms at the current conjuncture to unlock growth potential and lift productivity. They recognized that these reforms, which are a series of ongoing efforts, have significant long-term payoffs, and need to be combined with demand side policies for a higher chance of success.
Importance. Panelists agreed that given the limited policy space and a low global growth, structural reforms play a key role in invigorating today’s economy. Zhu noted that structural reforms are the most important “game in town” and their implementation is an imperative. Farrell thought governments could take advantage of the very low interest rates to invest in infrastructure, which lays the foundation for lifting productivity.
Political issues. Cárdenas and de Guindos pointed out that implementing structural reforms does not necessarily imply losing an election. To gain broad support from the electorate, governments need to communicate clearly the dividends and the necessity of the reforms. Farrell emphasized the need for a “shared dialogue”, with business and society on one side and regulators and governments on the other, to find solutions for structural issues. Cherif opined that putting together a long-term strategy that aligns with other reforms would help unite parties on structural issues, and that the benefits of this strategy should be shared with the entire society, particularly women and the youth. Zhu noted that there is scope for the IMF to do more to understand better the political side of structural reforms, and thereby strengthen capacity building and technical assistance.
Sequence and priorities. De Guindos thought a government should start from the most difficult reforms. Zhu pointed out that the reform priorities depend on the development stage. LICs could focus on developing the agriculture sector and price liberalization. Emerging markets may consider prioritize banking and regulatory reforms, while advanced economies could spend more on research and development and foster innovation.
Institutions and governance. Farrell noted that the success of structural reforms hinges on building a mechanism that responds to economic and social changes, and creating institutions that can carry on these efforts. Cárdenas emphasized that besides strong governance, there is a need to invest in political capital and listen to views of third parties, including think tanks, independent validators, and multilateral institutions.
“Today’s structural reforms have become ever-important as we are facing a low growth environment and potential growth is dropping. Structural reforms are the key driver of the global economy.” Min Zhu, Deputy Managing Director, IMF
“We need to combine structural reforms with demand side policies to support growth, and need to understand better the political side of structural reforms, to increase the chance of success.” Min Zhu, Deputy Managing Director, IMF
“It is time to take on difficult challenges. The crisis has provided us an opportunity to align stakeholders in such a way that policy makers can use the headwinds as the momentum to change things.” Diana Farrell, founding President, Chief Executive Officer, JPMorgan Chase Institute
“Structural reform does not fit into the ‘big bang’ theory—new government comes in, do the reform, and fix the economy. It is an ongoing process that responds to economic and social changes, and needs institutions that can carry on this process over time.” Diana Farrell, founding President, Chief Executive Officer, JPMorgan Chase Institute
“The best strategy to unite parties is to put together a long-term strategy that aligns structural reforms with other measures. The benefits of this strategy should be shared with the entire society, particularly women and the youth.” Olfa Soukri Cherif, Member of Parliament, Tunisia
“We have to do structural reforms before it is too late. We reform, recover, and then continue with the agenda. It is an ongoing process, and we always have to think more about new challenges and do more.” Mauricio Cárdenas, Minister of Finance, Colombia
“The importance of structural reforms is on the rise. The troika of high debt, low productivity, and low inflation makes the life of policy makers more difficult than 20 years ago. The only way forward, besides debt restructuring, is to enhance productivity globally.” Luis de Guindos, Minister of Economy and Competitiveness, Spain
Moderator: Julia Chatterley, CNBC Europe
Julia Chatterley is a CNBC anchor and European reporter covering key business and political events, and regular Eurogroup and EU summits in Brussels. She covered the Greek and Italian elections and Cypriot bailout. She joined CNBC as a producer in 2010 after seven years working at Morgan Stanley on the hedge fund desk, selling interest rates, FX, credit, equities and options products. She also spent time trading interest rate swaps and as an analyst in the securitized product research team.
Min Zhu, Deputy Managing Director, IMF
Min Zhu was appointed Deputy Managing Director of the International Monetary Fund on July 26, 2011. Previously he was a Deputy Governor of the People’s Bank of China, responsible for international affairs, policy research, and credit information. He served as the Group Executive Vice President of Bank of China before joining the country’s Central Bank. He also worked at the World Bank and taught economics at both Johns Hopkins University and Fudan University. He holds a Ph.D. from Johns Hopkins University.
Luis de Guindos, Minister of Economy and Competitiveness, Spain
Spanish Minister of Economy and Competitiveness since 2011, Luis de Guindos Jurado has been in charge of Spain’s economic recovery through both structural reforms and austerity measures in the aftermath of the euro area crisis. Prior to his government work, he worked in the private sector at among others PricewaterhouseCoopers and Mare Nostrum Bank, and was board member of energy company Endesa SA. Between 2002 and 2004, he served as Secretary of State for Economic Affairs. Born in Madrid in 1960, de Guindos graduated at the Colegio Universitario de Estudios Financieros.
Mauricio Cárdenas, Minister of Finance, Colombia
Mauricio Cárdenas has been the Minister of Finance and Public Credit of Colombia since September 2012. He has been Minister of Mines and Energy, Minister of Economic Development, Minister of Transport and Director of the National Planning Department. He has also been the Manager of Bogota’s Energy Company and Director of the Latin American Initiative at the Brookings Institution. Minister Cardenas studied economics at the Universidad del los Andes and has a Ph.D. in Economics from UC Berkeley.
Olfa Soukri Cherif, Member of Parliament, Tunisia
Olfa Soukri Cherif is member of the Tunesian parliament, serving in the committee on finance and on women. Earlier she was professor in economics at the Insitute Supérieur de Science Humaines in Tunis, and in mathematics and statistics at the la Sorbonne in Paris, where she also studied. She graduated with an MBA in trade policy from Harvard University, the continued as a consultant for the OECD.
Diana Farrell, founding President, Chief Executive Officer, JPMorgan Chase Institute
Diana Farrell is the founding President and Chief Executive Officer of the JPMorgan Chase Institute. Previously, Diana was the Global Head of the McKinsey Center for Government, providing research, proprietary data and other tools to support the government. She served in the White House as Deputy Director of the National Economic Council and Deputy Assistant to the President on Economic Policy from 2009-2011. A graduate of Wesleyan University, she holds an M.B.A. from Harvard Business School.