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The IMF also has been important in this policy debate. Managing Director Christine Lagarde is one of the most influential voices advocating more action to raise global growth. Lagarde is not alone. I draw an analogy between these current concerns and political debate in the s and s. The leading international policymakers of the interwar period failed to cooperate effectively during the Great Depression.

President Franklin D. Roosevelt chose to prioritize his national policy goal of weakening the dollar, despite the potential negative effects on other currencies, while ostentatiously rejecting the conclusions of the London conference. Eichengreen , notes that an agreement would have been impossible, because of the incompatibility of the priorities of the different parties at the conference. These differences certainly hold parallels with the present, especially the contemporary focus in the USA on the need to stimulate the economy, contrary to the prioritization of monetary and fiscal stability in the European Union EU.

International divergence has recently taken on a new twist, as the apparently protectionist policies of the Trump Administration could cause a further rift with other G20 members. This has now been compounded by the UK referendum vote to withdraw from the EU which has heightened global uncertainty. This rise of populism today reflects similar political currents in the s see Ash ; Judis , The Great Depression, then, and the global financial crisis now, both seemingly undermined confidence in the perceived benefits of prioritizing market efficiency and financial liberalization.

The agreements at the United Nations Monetary and Financial Conference, in Bretton Woods, New Hampshire, were intended to avoid another Great Depression by introducing new controls on capitalism, in a sense to prevent its self-destruction. This strategy combined Keynesian economics and the socioeconomic goals of American progressives and European social democrats, including full employment and other means to improve the living standards of citizens. In addition, policies sought to bring a multilaterally governed international economy that prioritized trade liberalization, while controlling capital flows and fixing currency exchange rates Ruggie , —6; Steil , , These policies were a deliberate response to the postwar political and economic circumstances.

Some of the economic priorities of the Bretton Woods compromise have been reprised by the G20 since the global financial crisis, including their emphasis on sustainable and inclusive economic growth. The new U. The comparisons between the global financial crisis effects and the Bretton Woods compromise, or the July negotiations themselves, influenced political debate during the acute period of the global financial crisis, from September to April There was a common perception, during the latter period, that the global economy confronted its deepest crisis since the s.

Some leaders, as a result, drew an optimistic analogy between G20 cooperation and the Bretton Woods negotiations. At the London G20 Summit in April , references to the failed World Economic Conference of reminded politicians of the possibly disastrous consequences from an unsuccessful meeting, which helped focus minds Schifferes ; Brown , These historical analogies arguably reinforced G20 cooperation at the London Summit.

Another important agreement at the London Summit was the substantial increase in funding for leading IFIs, to provide greater emergency assistance to countries in economic distress G20 a. This Keynesian-influenced G20 agenda during the global financial crisis was encouraged by several scholars, Nobel laureate economists, and policymakers around the world see HM Treasury , 3; Rudd ; Strauss-Kahn ; Stiglitz , , ; Krugman ;.

Leading economists such as Paul Krugman and Joseph Stiglitz contested aspects of the precrisis, neoclassical-influenced conventional wisdom in national and global economic governance. The global financial crisis had become less acute by this time, which weakened the G20 consensus on the need for more fiscal stimulus. This decreased the scope for economic cooperation between European leaders and the U. The international political and economic context confronting the German G20 Presidency is potentially quite ominous.

Deteriorating security relations between some G20 members, especially the Russian government and its G7 counterparts, undermined prospects for cooperation on issues such as the Syria and Ukraine conflicts in recent years.

Sustaining Global Growth and Development: G7 and IMF Governance

The insufficient global economic recovery from the global financial crisis seemingly has contributed to a slowdown in international trade. Trade could in fact decline further due to rising protectionist politics among the G20 and fears generated by the U. The growing financial insecurity and unemployment among citizens in many G20 members, as elsewhere, contributed to public doubts about the effectiveness of global economic policy and current mainstream politics. The evidence during the Chinese Presidency was that some G20 member governments and other stakeholders, especially the IMF and its managing director, recognized the urgency to improve the international economic and political situation.

The G20 continues to be the most obvious international forum for strengthening global governance cooperation. It has been tested, and performed well, as an international crisis committee in — Drezner , 44—9. There are concerns, however, about the willingness of the Merkel government to advance a sufficiently growth-boosting G20 agenda. The troika system is the rotating triumvirate combining the present, previous, and subsequent presidencies, intended to help guide the agenda of any presidency.

Foreword by the Minister of Finance

The German Presidency will likely emphasize cooperation on wider issues relevant to the host and the many other G20 members, such as international migration. Also Germany and its Chancellor have stated she intends to include a focus on African development issues Rinke Other key policy areas will include economic inclusion and inequality, the digital economy, and food security Kirton b.

The G20 members, like most other states, are experiencing negative effects from weaker global growth. The slowdown in international trade is particularly concerning for governments of key exporting nations, such as China, Germany, Japan, and Korea, as it substantially reduces their potential economic growth. While the German Presidency will likely use the forum to try to strengthen international trade, the distributional effects of trade should be addressed more by the G20 and its members Bernes The U.

Trump Administration might try to restrict trade and implement forms of fiscal expansion, especially through corporate tax cuts and infrastructure spending. If the Trump Administration decided to push for a G20 stimulus strategy, it might well find support from among several G20 members.

The Canadian government of Justin Trudeau is starting to implement its new, domestic fiscal-stimulus strategy Doyle Such changes in the G20 could increase pressure on the German government to accept a more active growth-stimulating approach to their domestic economy.

The IMF and G20 peer pressure has been insufficient to persuade the Germans to act in a greater growth-oriented manner.

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Irrespective of whether the trade surplus is simply the result of good governance and other virtuous factors Jung, Reiermann, and Peter Schmitz ; Sinn , the German economy and domestic policies have had external spillover effects European Commission , 3; IMF a , 1, 8. German officials and ministers have not yet detailed exactly how they will approach global economic growth during their G20 Presidency Marchyshyn , except to indicate that coordinated fiscal stimulus would not be on the official agenda IMF d.

It is unlikely that the intellectual and political divide between the austerity and fiscal-stimulus camps in the G20 will be resolved simply through debate. Clearly there are deep political differences in the forum on how to increase global economic growth Alexandroff , though the intensified attention to the issue could encourage areas of compromise.

Latest IMF Research, April 2019

Peer pressure also would intensify the sense of urgency on global growth if a new economic crisis developed, just as the economic emergency brought G20 policy cooperation during the global financial crisis. The main task during the German G20 Presidency should be to build on the Hangzhou Consensus, supported by the advice and resources of members and the relevant global governance bodies and stakeholders Alexandroff and Brean , 8—10; Harris Rimmer , 43; Slaughter It will be difficult, in the absence of another deep economic crisis, to achieve convergence on broad macroeconomic strategy.

Instead, the focus should be to seek specific areas of cooperation to enhance sustainable and inclusive global economic growth. The political imperatives at stake might require compromise, on all sides, in the three key areas: structural, fiscal, and monetary policies. The political context of the German Presidency could complicate matters even further.

There are impending general elections in France and, of course, the German federal elections. The Board also welcomed the declining use of wage bill ceilings in programs and called for their use in exceptional cases to be justified in a transparent manner.

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But more needs to be done. The IMF medium-term strategy and the recent reports fail to make clear what IMF staff should do with regard to assessing prospects for scaling-up aid. The Board has called for baseline scenarios with estimates of what aid is likely to be delivered. But it has not made clear how far the staff are expected to go in exploring the macroeconomic consequences of more ambitious scenarios.

The Working Group report called for more explicit guidance on such analysis and suggested that in many cases it is appropriate to investigate a scenario consistent with the commitments to expand aid made at the Gleneagles Summit—e. Q: What changes do donors, governments, and civil society need to make? A: The Working Group identified a striking disconnect between macroeconomic and health sector policy-making. Key fiscal decisions are taken with little understanding of the potential consequences for the health sector and health ministries typically cannot make an effective case for health funding.

Addressing these gaps will require eternal support but governments must take the lead in setting priorities. The role of parliaments also needs to be enhanced. Donors, who have often worsened the fragmentation of budgetary processes, should improve the predictability of their aid by making longer-term commitments. Civil society organizations involved in budgetary and health advocacy issues should give greater attention to monitoring and influencing the setting and implementation of annual budgets, which is the key battleground for priority-setting and where actual decisions do not always match the political rhetoric on the importance of health.

IMF critics allege that its programs unduly constrain health spending in poor countries, even when external financing is potentially available. The IMF argues that countries set their own spending priorities while the Fund monitors overall spending and fiscal sustainability. CGD recently launched a new working group to establish what actually happens under IMF programs and to make practical recommendations for improvements.

The day-long study session brought together a diverse group of experts with experience in analyzing and implementing macroeconomic and health sector policies and setting budgetary priorities. Q: What is the single most important concern about the impact of IMF programs on health spending that the group will study? This could be because the IMF takes too conservative view on what is needed for macroeconomic stability and for longer-term fiscal sustainability or because some of the policy instruments it uses in its programs have unintended consequences for the health sector.

Of course, even with debt relief and the prospects of higher aid, countries still face resource constraints that require governments to make difficult choices that will not please all stakeholders. So if health spending in a country is not growing as fast as some critics would like e. This is why it is useful to couch the key issue in terms of whether IMF actions have unduly narrowed the policy space. Q: Critics say that the increased use of public sector wage ceilings required by IMF programs are an important part of the problem.

How do you plan to evaluate whether this is indeed the case? A: Wage bill ceilings in IMF programs have become more frequent in recent years, especially in Africa: slightly over half of all IMF arrangements negotiated in had some form of ceiling on the wage bill. We plan to use a small number of case studies to investigate in depth how and why such ceilings were derived, what provision they made for increased health sector recruitment, and what the consequences were in practice. A: Yes, it is mainly up to the donors to improve aid predictability, and some the recommendations of the working group may be directed at bilateral donors or the World Bank.

But the group will also explore ways in which the treatment of aid flow projections in IMF programs might be improved. Q: You plan to consider ways to improve the negotiation of IMF programs. What exactly will you be looking at in this regard? First, in many low-income countries, macroeconomic stability has been largely restored and the key macro policy challenge is to help manage effectively a scaling-up of aid —financed spending. This requires integrating more fully analysis on sector-level expenditure choices with macroeconomic assessments, in a longer-term timeframe.

Second, we will look at ways of introducing greater transparency about the analysis and assumptions underlying IMF programs and policy advice. Q: These issues are both complex and quite controversial, with strongly held views on both sides. Nor will the group try to address questions such as the appropriateness or impact of IMF conditionality in general. Second, we will base our conclusions on two types of evidence: i cross-country evidence on what actually happened to health spending and fiscal targets in countries with IMF programs; and ii in-depth case studies of how recent IMF programs in a small number of countries have interacted with health sector budgeting, drawing upon a detailed review of IMF and country documents and interviews with key stakeholders.

Purpose of This Report

October 6, Liliana Rojas-Suarez. CGD policy experts are urging the International Monetary Fund to push for the inclusion of emerging market and developing countries in the re-write of bank supervision guidelines and other international financial rules that they say is likely to happen soon as a result of the global financial crisis.

I hope that the leadership of the IMF will follow suit and find ways to ensure that China, India and other key countries are at the table during the re-write of global financial rules. CGD experts have warned that the crisis will have profound implications for developing countries. The crisis will be topic number one when finance ministers from around the world convene in Washington this week for the annual meetings of the two Bretton Woods institutions, so-called because they were conceived at a conference in Bretton Woods, New Hampshire, in the waning days of World War II as collective means of avoiding a repeat of the Great Depression.

Rojas-Suarez said that the IMF should push for developing countries to become active participants in the Financial Stability Forum, FSF which coordinates international standards and codes to strengthen financial systems. Membership is limited to a handful of high-income countries and to international financial institutions, including the IMF and the World Bank. Another important body dominated by the high-income countries is the Basel Committee on Banking Supervision BCBS , which issues recommendations on banks' capital adequacy requirements, most recently through the Basel II Accord.

While the BCBS conducts consultations that include developing countries, rich countries make the decisions. Developing countries have long argued that these bodies fail to address their needs and concerns. In addition to its recent shift towards internationalisation of the renminbi, China has spearheaded the creation of regional international financial institutions to parallel the existing global institutions of the IMF and the World Bank He, The political backlash against globalisation arose in large part in reaction to the rising inequality in income and wealth.

Economic globalisation has had both positive and negative impacts on income and wealth inequality. The growth of global trade and the outsourcing of jobs from advanced economies to emerging markets — particularly to Asian net exporting economies — has done much to reduce global poverty and inequality among countries Milanovic, a. But inequality within countries emerging and advanced economies alike has clearly risen since the s Piketty, Despite this trend, some research for example, Assa, ; Goldstein, does suggest that at least one factor facilitating the rise of within country inequality has important global roots and consequences.

During this time, financialisation expanded opportunities for a wide range of corporations, which derived an increasing portion of revenues from activities such as derivatives trading and mergers and acquisitions. It similarly affected households, as they were increasingly investing in equities and other financial instruments. In the years leading up to the global crisis, this phenomenon accelerated, and the capitalisation ratio rose to 55 per cent before dropping precipitously back to 30 per cent and then rebounding up to 48 per cent.

Financialisation also appears to have provided some stimulus to employment in advanced economies by creating jobs in construction and services to offset the loss of jobs in manufacturing. The negative effects, however, eventually outweighed the benefits. Financialisation contributed to rising inequality of income and wealth and to excessive housing construction.

Financialisation in economies such as Ireland and Spain facilitated housing booms in which a large amount of labour was drawn into building and real estate activities that were unsustainable in the long run. In Ireland, for instance, the outsized and speculative growth therein was followed by a deep depression and a weak recovery at least through also see Boland, The global crisis exacerbated these negative effects, at least for a number of advanced economies. The earlier democratisation of home ownership and participation in equity and other securities markets meant that a broad range of households suffered large wealth shocks while job stability was most at risk.

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Countries with high rates of financialisation — the United States, the United Kingdom, Ireland, and Spain among others — were particularly hard hit Dolphin, ; Epstein and Montecino, As a result, the narrowing of the income gap between advanced and developing countries especially with the rise of the middle and upper classes in China and other Asian countries was juxtaposed against a rising income gap within some advanced economies. Cassel, ; Cronin, Rising income inequality resulted in part from the shift from manufacturing to financial and other services which hollowed out the job market for workers without advanced skills and the secular policy drift toward deregulation of industries with substantial economies of scale which enabled concentrations of power and wealth.

The importance of these and other causes has been the subject of much debate, and the role of financial globalisation has arguably been more of an enabler than a cause. Nonetheless, the globalisation of both trade and finance became the focus of much of the popular backlash against the resulting stagnation that lay ahead for many households see Burgoon, , The need for expensive public rescues of large private financial companies such as AIG in the United States and Commerzbank in Germany further fuelled the backlash.

If the glories of economic globalisation were indeed oversold on the upswing Summers, , then the costs were similarly oversold on the downslope. The reversal thus fuelled a variety of democratic setbacks, including the rise of extreme nationalist parties in Europe, the British referendum to leave the European Union, and a Presidential campaign in the United States that relied heavily on nativist and mercantilist slogans.

The continuation of economic globalisation is not inevitable. While economic interdependence brings the world closer together, the negative effects it carries force policy makers to prioritise national, as opposed to global, governance responses, which lead to trade protectionism and the balkanisation of financial regulation.

For several decades after the Second World War, economic globalisation seemed to be an unstoppable and an irreversible characteristic of economic progress. From the s and onward, with the spectacular growth in international capital flows, financial globalisation became an added and even more dominant feature of the landscape. Recent developments, however, have served to remind us that globalisation does have inherent costs and negativities. As the preceding section showed, a backlash against it began in the final years of the 20th century, and the crisis of —09 has done much to reinforce a reversal.

As the economic historian Harold James has documented, the recent episode of globalisation had two major predecessors: one in the 16th century, fostered by the Age of Discovery; and one in the decades around the end of the 19th century, when the gold standard along with advances in transportation and communication helped stimulate international trade and finance. Both episodes were ultimately reversed, partly for idiosyncratic reasons unique to the period but more fundamentally because of the excesses and internal contradictions of uncontrolled expansion James, The abandonment of the international gold standard, an era which lasted only from the s until the outbreak of the Great War in , is a particularly relevant cautionary tale for the present day.

International Monetary Fund Programs and Health Spending

While the outbreak of war was indeed the catalyst for the end of globalisation, the seeds of demise were already present due to the lack of an international regulating effort. Competition within a sovereign state can and must be regulated by the state so as to limit the concentration of power and wealth that would otherwise naturally occur, but competition among sovereign states lacked this natural braking system in the absence of a joint and sustained multilateral regulatory effort. With no institutional oversight or regulation, any open economy system would inevitably collapse of its own weight sooner or later.

The Great Depression ensued, and by the time war erupted again in , both trade and financial investment had imploded into small blocs most notably the sterling area. To a careful observer, it was evident that a resumption of growth — or even the restoration of stability — would require a new and better form of globalisation. During the Second World War, economic planning turned forcefully toward restoring international trade and finance. Although the effort to create an institutional framework for trade did not immediately succeed, financial cooperation fared better. Wartime economic diplomacy, culminating in the monetary conference in Bretton Woods, New Hampshire, created both an institutional framework for the restoration of multilateral finance and a spirit of interdependence that largely reversed the depressive forces of the interwar period.

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  • Overcoming national interests in preserving trade preferences proved much more difficult, however. From to , the volume of world exports grew at an annual rate of close to 9 per cent, enabling world output to grow at a rate of just under 5 per cent. By the early s, none of those factors could be sustained in an increasingly complex world economy.

    What emerged from the ashes was a more flexible system in which each country could choose almost any exchange regime ranging from fully fixed to fully floating except for pegging to gold, which was now prohibited as long as it implemented monetary and fiscal policies consistent with that regime. The demise of the Bretton Woods system ushered in the modern age of financial globalisation. Although international trade continued to grow, concerns about financial globalisation arose in the early s. The worry was mainly that many emerging market countries had financial systems that were neither adequately developed nor regulated to ensure that capital inflows would not be destabilising.

    Fears of instability were realised in numerous instances from crisis in Mexico to —98 crises in several East Asian countries, Russia, and Brazil and to crisis in Argentina. By the end of the century, however, a backlash was taking hold, much as it had in earlier episodes of globalisation.

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    This millennial reaction was motivated by a widespread recognition that globalisation had failed to deliver on the promises of its supporters. In advanced countries, that failure had two primary dimensions: disappointing aggregate economic growth and a calamitous lack of inclusiveness in the distribution of the gains. On balance, and for several reasons, this relationship has been much weaker than anticipated.

    Major financial crises have routinely cut into and overwhelmed the economic growth that initially followed from surges in capital inflows Boughton, The global crisis of solidified and amplified those concerns. The second and larger disappointment, as noted in the preceding section, is that the gains from international trade and from economic growth more generally have been distributed unevenly. Most people in advanced economies as well as in emerging markets and less developed countries have experienced only limited benefits.

    As Branko Milanovic a , b documents, the gains are very heavily concentrated in the top 1 per cent of the income distribution in advanced economies and in the middle and upper classes in Asian countries. Economists have always noted that globalisation or more specifically, international trade has winners and losers, that the gains exceed the losses, and that the key is to compensate the losers so that most people benefit or at least do not end up worse off.

    The system has failed to deliver on the last step. On average, that group has seen little gain in real income since the late s. The data reported cover to Corlett , however, warns that many advanced economies have, in fact, seen their middle and lower income citizens benefit from globalisation. In addition to these two primary problems, globalisation came to be seen as a source of environmental degradation and a contributor to the decline of labour rights.

    Developing countries typically have more lenient environmental standards and less labour protection than wealthy countries, and if those differences enable developing countries to produce goods at lower cost, then international trade may not be taking place on a level field of competition. This view led to an expanded agenda for new trade agreements, in which environmental and labour regulations were important subjects for negotiation. That agenda, however, was susceptible to abuse and offered a cover for protectionism.

    Not surprisingly, the past twenty years have witnessed intensive debates over these concerns so that efforts to make such new agreements have been difficult to bring to fruition. The —09 crisis solidified and magnified the backlash because of the perceived link between trade and income distributions.