Christine Lagarde, managing director of the International Monetary Fund, said in Tokyo today that the global community must take fresh steps to curb unemployment and put their economies on a sustainable growth path.
We know the package of policies that can get us there, Lagarde said during a keynote speech to the IMF-World Bank annual summit meeting.
She cited accommodative monetary policy: the right pace of fiscal adjustment, mindful of not undercutting growth but with solid and realistic plans to bring debt down over the medium term. Her statements contrasted with the views of political leaders in Europe and the U.S. who emphasize government debt and deficit reduction over stimulus measures.
Lagarde acknowledged that many governments are failing to focus sufficiently on growth measures that will end unemloyment. The key to success is to move beyond deliberation to action on the policies and to move together on all fronts," she said.
Lagarde also said that progress toward ending the slowdown required further financial reform. Today, despite some progress, she said, the system is not yet much safer than at the time of Lehman. Lagarde noted that the banking system is still too complex, that activities are still too concentrated in large institutions and that the specter of 'too important to fail' still haunts the sector. Continuing excesses and scandals, she added, show that the culture has not really changed.
Many industry executives are concerned about the cost of new regulations, but Lagarde said the IMF has found that better regulation will raise bank lending rates very little. We also found that increasing capital buffers to appropriate levels helps growth, not hurts it, she said, adding that financial transaction taxes were also desirable. Reforming financial sector taxation also can help reduce excessive risk-taking and leverage.
Lagarde also observed that further stimulus and reform measures werent sufficient to put the global economy on a sustainable growth path. To that end she called on the global community to come up with policies that target inequality, specifically by improving access to credit and capital for the disenfranchised or underprivileged. Her statement echoed views expressed earlier during the meeting by the new World Bank president Jim Young Kim. Growth is essential for the future of the global economy, but it must be a different kind of growth, Lagarde said, calling for growth that is not simply the fallout from unfettered globalization, a growth that is inclusive.
Recent IMF research indicates that less inequality is associated with greater macroeconomic stability and more sustainable growth, she told the meeting. It means focusing on efficiency but also keeping equity in mind when setting fiscal policy, Lagarde said. It means fairness in sharing the burden of adjustment and protecting the weak and vulnerable. It means financial inclusion, so that all have access to credit and financial markets. It means better transparency and governance, so that the doors of opportunity are open to all, and if they close, one knows why.