CAIRO: While generally the global growth has resumed, it is uneven across and within countries, according to the International Monetary Fund.
While speaking after meeting with finance ministers and central bank governors from the world’s leading and emerging markets just a few days ago, IMF Managing Director Dominique Strauss-Kahn stressed that stronger policy action was still essential to ensure the world obtains the “right kind of recovery.”
Strauss-Kahn was quoted in IMF Survey magazine as saying: “We need really strong policy action to deliver the right kind of recovery; one that not only addresses global economic imbalances but also leads to better outcomes for everyone.”
During the G-20 ministerial meeting discussing ways to move forward to create a more stable global economy, a set of indicators were agreed upon as a way to measure imbalances in light of what is said to be the worst recession in more than 60 years.
The meeting, which was held in Paris as the first under the French presidency, saw a decision made to unanimously create guidelines against which indicators will be assessed by their next meeting in April.
The indicators will encompass public debt and fiscal deficits, private savings rate and private debt, and the external imbalance composed of the trade balance and net investment flows and transfers, “taking due consideration of exchange rate, fiscal and monetary and other policies.
With these indicators, the IMF will be able to present an in-depth technical analysis as part of the G-20 Mutual Assessment Process that is intended to help improve policy cooperation and decrease global imbalances.
Strauss-Kahn noted that these indicators are quite important and that overall collaboration has become rather challenging, which has made the process difficult.
“In the case of Egypt, our indicators may not suggest a need to avail resources from the IMF in the form of a program. However there may be a case for post-crisis assistance,”
Magda Kandil, director of research at the Egyptian Center for Economic Studies, told Daily News Egypt.
“This would require a formal request from the Egyptian authority to the IMF in order to discuss eligibility for assistance, the type of lending facility the country could apply for and conditions attached,” she added.
Some parts of the world, such as Asia and Latin America, are doing well in the opinion of Strauss-Kahn, as he cites Africa even recovering quicker than they have in crises before and are predicted to see a 4.5 percent growth.
Strauss-Kahn worries that some of the more advanced economies, the outlook is not as positive with the United States position uncertain and problems plaguing Europe, mainly in the Eurozone.
As far as aiding growth in Egypt, Kandil believes that stability to mobilize activity, resume lending and stock market operation and focusing on inflation targeting to increase competitiveness and contain inflationary expectations will all be steps in the right direction.
“While government spending will increase in the near term, mostly in relation to the social agenda, it is important to resume fiscal consolidation in the near term to reduce the fiscal deficit and concerns about rising public debt,” she added.
“Growth without jobs is not meaningful to the man in the street so are far from having done our job,” said Strauss-Kahn on the topic of unemployment.
Unemployment has remained high, particularly in the advance economies and although the world was recuperating from the economic crisis and put the financial crisis was put on the backburner, Strauss-Kahn expresses that the social crisis was still present.
Other major issues outlined and discussed were the risks of “overheating” in emerging markets as well as the increase of food and fuel prices, which have risen to as high as in 2008.
He explains that this is a threat mainly for low-income countries, such as Egypt, and vulnerable people everywhere.
The increased prices coupled with frustration over the lack of political reform led to protests that ousted president Hosni Mubarak in Egypt.
Strauss-Kahn has commented that even though steps have already been taken to improve regulation, more needed to be completed on cross-border resolution of financial institutions as well as supervision.
He added that the IMF had proposed an idea of both a financial sector contribution and a financial activities tax to discourage excessive risk taking by the financial sector, but that they have not been taken forward.
In some countries, such as Egypt and Tunisia, where an overall positive growth rate has been experienced, a major problem that has required attention as well is income distribution and inequity.
Kandil believe that ways to improve income distribution for Egypt could include “rationing government spending, including by subsidies’ reform, to have a better targeted scheme that would eliminate waste in spending and establish better equity.”
She added, “Availing more jobs and supporting productive activity that would help vulnerable groups graduate of continued dependency on subsides and mobilizing their resources to collect income and grow their income over time in line with their productivity.”
In the G-20 meeting, the ministers had agreed upon a work program targeted at amplifying the functioning of the international monetary system, including dealing with potentially destabilizing capital flows.
They also agreed on better management of global liquidity to increase capacity in an effort to avoid and deal with shocks, including Financial Safety Nets and function of the IMF’s Special Drawing Rights.
Strauss-Kahn stressed the importance of IMS reform in order to avert future crises, but understands that the issues will not be resolved overnight.
He also has announced an “IMF 3.0,” which relates to the institution taking a bigger focus on the financial sector issues as well as enhancing the efficiency of the organization which includes 187 member countries.
The IMF’s Chief Economist Olivier Blanchard has been cited as saying that two key issues for the global economy nowadays are how emerging market countries are handling their capital inflows.
He explained that the high growth in the emerging markets and low interest rates in advanced markets have generated a strong capital flow to places such as Latin America and Asia.
He also notes that continued slow growth within the advanced countries will result in steady high unemployment rates, adding that it also proves challenging to consolidate rather quickly.
