IMF Chief proposes 4Rs for way forward

By Deepal V. Perera in Washington DC

As the economies of the world head into the danger zone, the International Monetary Fund (IMF) called on all member states to unite and act together in pulling out from the crisis and moving onto the path of recovery.

“This is not a problem that concerns the advanced economies or the emerging markets to a lower degree, but it is problem that concerns each and every country and each and every member institution. We are in this together and we can pull out of this together because from the IMF’s perspective, our analysis says that there is path for recovery. There is a path for recovery. It is narrower than it was three years ago when we first were hit by financial crisis, but there is a path for recovery,” said IMF Managing Director Christine Lagarde at the press briefing held in Washington.

She said that the path for the recovery was purely based on implementation of the right policy at the right time and accordingly proposed new reforms in policies, which is referred as ‘R’ for repair.

“The first thing that needs to happen is Repair. Advanced countries need fiscal consolidation and that is a matter of priority. Fiscal consolidation is a matter of priority, and equally, consolidating too fast, too heavy for some countries is going to be harmful for the potential growth that we see,” she noted. Lagarde said that the option was not a dilemma, but a question of timing and confidence. “What needs to happen is medium-term, long-term, solid and well-anchored measures that will actually aim at restoring good public finances by reducing deficits, stabilising debt and gradually reducing it have to be at the forefront of any agenda in those economies,” she said.

Having said that, the IMF Chief emphasised that as long as the medium-term and long-term are well anchored, some countries, such as the United States, can accommodate growth in the short-term.

“But it is a balancing act once again and there has to be a parallel track of what can accommodate growth in the short term by slowing down the pace of consolidation and how strongly, definitely and well-anchored the measures that will deliver deficit reduction in the longer term are,” Lagarde said.

The second R is about Reform in the financial sector. “Three years down the road we are still not as advanced as we should be in terms of financial reforms. It is also that degree of uncertainty and work in progress that is fuelling this anxiety and lack of confidence of some of the investors so financial reforms have to be pursued,” she said.

Presenting the third R factor, Rebalancing, the IMF Managing Director said that rebalancing between public sector and the private sector, which has been stalled, has to be happen in a pursued and continued manner.

The other rebalancing act is all about rebalancing from deficit account countries to the surplus account countries, the latter having to expand their domestic market in order to fuel growth not just by an export-driven economy but strong domestic base at home.

Speaking on her fourth R factor, Rebuilding, Lagarde said that it applied more specifically to low income countries because the low income countries travelled through the last three years ever since the financial crisis and despite high commodity and high oil prices, they have navigated the crisis rather well and better than other economies. “However, in doing so, they have absorbed and used – extinguished, in some cases – the buffers that they had developed. Those low income countries need to rebuild buffers and they need to strengthen again. Therefore we need to help them in helping themselves. That is a matter for the donor community, a matter for the international institutions and the IMF will certainly stand ready to do that,” she concluded.