For some time now, the IMF has been urging leaders to “fix the roof while the sun is shining.” With some risks to the global economy now materializing, is it too late? Are trade tensions and rising debt levels just passing clouds or a storm on the horizon? Martin Wolf of the Financial Times leads a conversation with IMF Managing Director Christine Lagarde on the global economy’s main challenges and the opportunities they present for policymakers.
Martin Wolf, Chief Economics Commentator, Financial Times
Christine Lagarde, Managing Director, IMF
For some time now, the IMF has been urging leaders to “fix the roof while the sun is shining.” With some risks to the global economy now materializing, is it too late? Martin Wolf of the Financial Times led a conversation with IMF Managing Director Christine Lagarde on the global economy’s main challenges and the opportunities they present for policymakers.
State of the global economy. Lagarde noted that the Fund perceived the impact of monetary policy normalization, ongoing geopolitical risks and the disruption to the multilateral trade system as the main current risks. Talking on her own behalf, Lagarde was particularly concerned about forgetting what happened during past episodes of rising protectionism.
Trade tensions and global system of economic co-operation. Reacting to Wolf’s question about the IMF’s role in a situation of escalating trade tensions, Lagarde noted that the IMF was created to foster multilateralism and emphasized that the way Articles of Agreement were designed provided the IMF with flexibility that made it stronger than other institutions. She hoped that the institution could become the forum in which the trade issues could be discussed.
· Monetary policy normalization.Lagarde stated that while the ongoing monetary policy normalization posed a challenge to emerging markets, she believed that if the accommodative policies in advanced economies had not been implemented during the crisis the current situation would have been much worse.
Emerging markets (EMs). According to Lagarde,the elevated levels of policy uncertainty related to trade and monetary policy created a new kind of environment in which emerging and developing countries would have to use all available policy tools. On whether capital controls should be part of this toolbox, she noted that under the Fund’s Institutional View on capital flows there was scope to use them, but only under exceptional circumstances and not as a substitute for macroeconomic and macroprudential policies. Responding to Wolf’s skepticism about the prospects of the IMF’s program with Argentina, Lagarde noted with confidence the exceptionally strong commitment by the Argentine authorities to the program’s policies, in contrast to other recent programs, such as the one on Greece, that had been much more mixed.
Is the Eurozone crisis over? Lagarde noted that the strengthening and structuring of the Eurozone was not over, and, despite the slowdown in progress, she believed that one should “never give up on Europe”. On whether she was concerned about Italy’s fiscal policy, she emphasized that all members of the Eurozone had to play by its fiscal rules and reserved her judgment on Italy’s policies until after the proposed budget would be revealed.
IMF resources. In the context of the current challenging circumstances and potential rise in program requests,Lagarde expressed that she had full confidence in the IMF’s staff and its ability to deliver and hoped that the ongoing review of quota would lead to enhancing its financing capability.
“I am never happy, because we can always do better” Christine Lagarde
“You should never give up on Europe.” Christine Lagarde
“The way the IMF was structured by its founding fathers, with weighted voting mechanisms and evolution embedded in the Articles of Agreements, has made our institution, the IMF, stronger than others.” Christine Lagarde
“In the end the last resort institution, I know that, will be the IMF” Christine Lagarde
Contributor: Veronika Sola
Chief Economics Commentator, Financial Times
Martin Wolf is Associate Editor and Chief Economics Commentator at the Financial Times, London. He was awarded the CBE (Commander of the British Empire) in 2000 for services to financial journalism. Mr Wolf was a member of the UK’s Independent Commission on Banking in 2010-11. His most recent publication is The Shifts and The Shocks: What we’ve learned – and have still to learn – from the financial crisis (London and New York: Allen Lane, 2014).
Managing Director, IMF
Christine Lagarde is a French lawyer and politician who has been the Managing Director (MD) of the International Monetary Fund (IMF) since 5 July 2011.
Previously, she held various, senior ministerial posts in the French government: she was Minister of Economic Affairs, Finance and Employment, Minister of Agriculture and Fishing and Minister of Trade in the government of Dominique de Villepin. An anti-trust and labor lawyer, Lagarde was the first female chair of major international law firm Baker & McKenzie, between 1999 and 2004.