1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites

Economic tightrope walk

Andreas Becker / hgApril 19, 2013

The annual spring meeting of the International Monetary Fund (IMF) and the World Bank in Washington has a lot on the agenda. Both bodies have also grown more cautious in assessing conventional concepts.

https://p.dw.com/p/18JH9
International Monetary Fund (IMF) Managing Director Christine Lagarde SAUL LOEB/AFP/Getty Images
Image: REUTERS

The director of the International Monetary Fund (IMF), Christine Lagarde, is not content with global economic developments. There are different speeds at which individual regions are moving towards recovery. Developing and emerging nations have seen their economies expanding, while the United States has posted only moderate growth. Europe and Japan are lagging behind.

"Such an uneven, three-speed recovery is not healthy," Lagarde said. "We need a global economy that's growing at full speed." Lagarde added growth had to be solid, sustainable and environmentally friendly.

Her vision may sound nice, but present-day realities are different. That's why Lagarde made many different recommendations. Addressing the rapidly growing developing and emerging countries, she warned against excessive financial operations and urged a strengthening of regulatory bodies.

She advised poorer nations to invest more in infrastructure, health and education with the help of the international community. Lagarde called on the United States to get its finances organized in a more orderly and well-communicated fashion.

Advice for Europeans

Lagarde said crisis-stricken Europeans had come a long way within a short time. She viewed the creation of a shared-liability banking union as a priority. "The recovery on financial markets doesn't seem to have an impact on growth and employment, that is the area that matter most to people," Lagarde said.

What's the way forward? The European Central Bank (ECB) could cut its interest rates even further. Lagarde said she believes the ECB has the greatest room to maneuver of all central banks. Its benchmark financing rate is currently 0.75 percent, compared with 0.5 percent in the UK, 0.25 percent in the US and 0.1 percent in Japan. But it's even more important to make sure that favorable interest rates have a positive effect on households and smaller enterprises. Lagarde said further banking-sector reforms would be required to this end.

Lagarde left no doubt about what she thought of Spain's reform speed. She acknowledged that the country - like Greece, Portugal and Italy - had been weighed down by a shrinking economy and record unemployment. While the country needs to restructure its finances, there would be no point in sticking to previously agreed austerity measures, Lagarde argued, granting Spain more time to get back on its feet.

Pills too bitter to swallow?

Lagarde did not comment directly on cost-cutting measures in other crisis-stricken nations. But you can read between the lines that she's obviously reconsidering the efficiency of the previous reform course. "We have to protect people affected by the crisis," she said. "We have to make sure that the restructuring process continues in a fair manner."

She indicated that principle would be incorporated in the hammering out of reform programs for individual nations, adding that progress made so far would be re-evaluated. It's pretty much like walking a tightrope. It's part of the IMF's job to administer bitter pills in a debt crisis, but the dose must be right so as not to stifle growth.

World Bank President Jim Yong Kim REUTERS/Yuri Gripas
Jim Yong Kim knows reducing extreme poverty will be a tall orderImage: REUTERS

World Bank President Jim Yong Kim also faced challenging situation as he prepared for the spring conference with the IMF in Washington. His institution aims to end extreme poverty in the world by 2030 and finance development projects for this purpose. At the same time, growth the programs generate should be environmentally friendly.

Climate change and competition

Climate change isn't just an environmental problem" said Kim. "It's a threat to global economic development to boot." He added that if the world was not to act courageously now, global warming would reach dangerous levels and with it decades of advances in the fight against poverty would be nipped in the bud.

Kim said he wants to give the World Bank a clearer profile. Each project is to be assessed with an eye on its potential to reduce extreme poverty while also being environmentally friendly.

The group of emerging nations Brazil, Russia, India, China and South Africa - also know as the BRICS countries - are planning to create a development bank of their own. Kim doesn't see such a body as being a rival of the World Bank.

"Each BRICS nation has an enormous infrastructure deficit," he said. India alone needs about $1 trillion for infrastructure projects over the next few years. "No institution on its own could provide so many resources," Kim said. He said he saw a BRICS bank as a natural development in a bid to raise funds for investments in infrastructure.