Implementation, investment, and inclusiveness: these three policy goals will dominate the G-20 agenda this year, including the first meeting of finance ministers and central bank governors in Istanbul next week. As Turkish Prime Minister Ahmet Davutoğlu recently put it: “Now is the time to act” – şimdi uygulama zamanı.
There is a lot at stake. Without action, we could see the global economic supertanker continuing to be stuck in the shallow waters of sub-par growth and meager job creation. This is why we need to focus on these three “I’s”:
- Implementation – promises to keep
The immediate challenge for G-20 economies is to implement the ambitious commitments made at the Brisbane Summit in November. If delivered, they can add more than US$2 trillion to the global economy and create millions of new jobs over the next four years. The IMF has been asked to monitor the implementation of this growth strategy and will do so – country by country, reform by reform.
The upside is tremendous. It comes on top of the potential further boost from recent oil price declines. And yet, the global economy faces significant downside risks as well. That is why, in spite of cheaper oil and stronger U.S. growth, the IMF in January cut its global growth forecasts for both 2015 and 2016 (to 3.5% and 3.7%).
One risk emanates from what I have called “asynchronous monetary policy” – normalizing monetary policy in the U.S. while most others are increasing monetary stimulus. Even if this process is well-managed, it may result in excessive volatility in financial markets as investors reassess their perception of risk.
A second risk is the strengthening U.S dollar. Emerging market economies are especially vulnerable because, over the past five years, many of their banks and companies have increased their borrowing in dollars.
A further risk is that the Euro Area and Japan could remain trapped in a twilight zone of low growth and low inflation for a prolonged period. These “low-low conditions” would raise the risk of recession and deflation, because they would make it even harder for many countries to reduce high unemployment and high debt.
- Investment – let’s get structural
This all points to the need for a more powerful policy mix. Accommodative monetary policies remain essential to support demand in many countries. And fiscal adjustment should remain as growth and job-friendly as possible. But that is not enough. We need a decisive push for structural reforms in areas such as trade, education, health, social safety nets, and labor and product markets, as well as efficient infrastructure. These reforms will improve potential growth prospects over the medium term and some of them will also have a positive short-term effect.
In particular, I strongly support the ambitious new plan to boost quality infrastructure investment as part of the G-20 growth agenda. We have already seen some progress. Follow-through on the European Commission’s ambitious €315bn investment plan – including by removing regulatory obstacles that have held back investment – should have strong payoff.
New trade agreements across the Pacific and the Atlantic could also spur economic growth, after years of slowing growth in global trade. Over the past two years, trade volumes have increased by only 3 percent, well below the pre-crisis average of 7 percent. So there is plenty of scope for accelerated growth.
- Inclusive growth is a must
The G-20 growth strategy also stresses the need for more inclusive and sustainable growth. One of its key goals, for example, is to close the gender gap by 25 per cent over the next decade. This would bring more than 100 million women into the labor force, thus increasing global growth while also reducing poverty and inequality.
Policymakers should take inspiration from countries such as Chile and the Netherlands. These economies have sharply increased female labor force participation through smart policies that emphasize affordable childcare, maternity leave, and workplace flexibility.
The Turkish G-20 presidency’s plan to put international development at the center of its agenda is also very welcome. Later this year, global policymakers will seek to establish a new set of Sustainable Development Goals – and find ways of financing them. Building on its long-standing work in developing countries, the IMF intends to play a significant role.
Action is already taken on helping countries affected by Ebola. I am pleased to report that the IMF has met its commitment to the G20 in Brisbane to provide more financing and debt relief to the three affected countries. With the support of our membership, we will provide $100 million in debt relief – the first multilateral institution to do so– and expect to provide additional immediate financing of $160 million (in addition to the $130 million we provided in September). And we are pushing for more funding from the international donor community.
This year global leaders will also have a chance to strike a comprehensive deal to cut carbon emissions at the Paris summit in December. Eliminating energy subsidies will be key. It is encouraging to see the recent decrease in fossil fuel subsidies in countries such as Cameroon, Côte d’Ivoire, Egypt, Haiti, India, Indonesia, and Malaysia. This policy, for which the IMF has been pushing hard, is good for the environment and good for growth.
Cooperation is Key
I am also heartened by the Turkish G-20 presidency’s intention to increase the traction and credibility of global economic cooperation by reaching out to a wider range of stakeholders. They include civil society representatives, research centers, trade unions, and other NGOs. This effort moves us in the direction of what I have called the “new multilateralism”.
Of course, effective global cooperation requires institutions that are efficient and representative of a changing global economy. As I have said before, I am profoundly disappointed that the U.S. did not ratify the 2010 quota and governance reforms by the end of last year. The IMF’s Executive Board is now working on interim steps – while we continue to keep our eyes on the prize of completing the 2010 reforms.
It is fitting that we should gather this year in Turkey, a country that straddles East and West. Bridging G-20 aspirations and accomplishments will require decisive uygulama. It is time for action on the three “I’s”.