Rebuilding the global economy requires the governments of advanced and emerging nations to focus as closely on growth initiatives as on efforts to stabilize their banks and improve their fiscal condition, the board of governors of the International Monetary Fund said over the weekend.
We need to act decisively to break negative feedback loops and restore the global economy to a path of strong, sustainable and balanced growth, stated the communiqué issued at the close of the IMF-World Bank annual summit in Tokyo during the weekend.
Advanced economies must work harder to secure a sustained recovery from the crisis, according to the communiqué. Although the board acknowledged that monetary easing has created more accommodative financial conditions, it noted that measures to close budget deficits should be focused on the medium term so as not to choke off growth. Fiscal policy should be appropriately calibrated to be as growth friendly as possible, the communiqué said.
And although the ECBs recent decisions designed to boost demand and stabilize the financial system are welcome, the board saidfurther steps are necessary, including structural reforms to boost growth and employment.
As for the U.S., the IMF board said the government must summon the political will to resolve the fiscal cliff, raising the debt ceiling and making progress toward a comprehensive plan to ensure fiscal sustainability.
Emerging-markets policymakers must also take collective action to address weaker external and domestic demand, the board said. Although it noted in some cases, policy tightening to halt the rise of inflation, especially in food prices, may be necessary, the board said they such measures should not come at the expense of growth that is consistent with global rebalancing.
Christine Lagarde, IMFs managing director, told the closing press conference that she had detected a sense of a renewed commitment to actually implement those policies. And she said although a great deal of attention had been paid during the meeting to fiscal adjustment, she observed the pace and type of measures obviously need to be calibrated on a country-on-country basis.
The IMF board of governors also decided to use $1.1 billion in proceeds from the sale of gold assets to increase funding for low-income countries and is considering distributing the remaining $2.7 billion in the gold sale windfall to them as well.