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IMF: Full Ahead S-L-O-W

Shawn Baldwin, Chairman of the AIA Group with David Lipton, First Deputy Director for the International Monetary Fund (IMF) at the IMF 2016 Spring Meetings

(Washington, DC) While revelers cheered in the bright and sunny weather at the Cherry Blossom parade, the IMF released the outlook from its' steering committee—a group comprised of 25 of the largest economies in the world—therefore giving the report significant weight in the global finance community. The outlook was fairly dim to say the least. This marked the fourth time in a year that the IMF cut its global growth forecasts, estimates are 3.2% for 2016 and 3.5% in 2017, having previously predicting 3.4% and 3.6% respectively.

The International Monetary and Financial Committee (IMFC) said in its statement: "Downside risks to the global economic outlook have increased since October, raising the possibility of a more generalized slowdown and a sudden pull-back of capital flows." In simple terms that translates into less than rosy prospects.

The underlying reasoning was that weak trade and a series of potential global risks (which happens to include a "Brexit" scenario) pegged as the primary culprits. The less than robust forecast didn't include any potential exogenous risks that might lie in wait. On that basis the steering committee implored countries to increase public spending to avoid deflation, adding that accommodative monetary policies should continue in the advanced economies in conjunction with structural reforms and implementation of policies that support demand and assist displaced workers. The communique emphasized that monetary policy alone was not enough but continued to extol that, "Growth-friendly fiscal policy is needed in all countries."

The ever eloquent (and elegant), Christine Lagarde, managing director of the IMF, characterized the discussions between finance ministers and central bankers at the spring meetings as "collective therapy" in dealing with the less than favorable projections. Her comments drew laughs from the group as an affirmation of the collective commiseration.

After the unprecedented volatility in January, which unnerved investors and bankers alike, Lagarde stated that calmer financial markets starting in February had relaxed the nerves of participants at the IMF 2016 spring meeting.
"There was not exactly the same level of anxiety but I think there was an equal level of concern, and a collective endeavour to identify the solution and the responses to the global economic situation," she said.

Additional points of interest were that Germany's Wolfgang Schaeuble appeared optimistic on the progress in Greece. In line with the G20 statement, the 24-member IMFC said countries should "refrain from all forms of protectionism and competitive devaluations, and to allow exchange rates to respond to changing fundamentals." The statement was released amid concerns that some countries are keeping their currencies weak in a "race to the bottom".

Swiss National Bank (SNB) Chairman Thomas Jordan stated the need for additional fiscal stimulus along with structural reforms in Europe, Japan and China—intonating that it was becoming a reality with policymakers. "These structural reforms are difficult to pass through parliaments...there is a certain risk that this will be postponed." said, Jordan.

One of the last panels focused on taxation and transparency. This was a direct result of the "Panama Papers" debacle and will result in a collective effort by the IMF and the OECD to work together with member countries on a "taxation summit"-emerging countries largely see the evasion issue as potential lost revenue opportunities for them. Stay tuned on that effort but don't hold your breath waiting on measurable initiatives from developed countries. The first and foremost country not cooperating on that list will be the United States. As a sovereign printing our own currency, we won't be opening our taxation collection processes to anyone.

A final important note was that the committee called on the IMF to review its lending practices "to explore ways to strengthen its approach to helping members manage volatility and uncertainty — including through financial assistance, also on a precautionary basis." The statement added weight and credence to Lagarde's campaign for a stronger global financial safety net. Given a broader set of precautionary financing tools like the IMF credit lines emerging market countries could reduce their reliance on costly reserves.

The panel is being chaired by Mexican central bank governor Agustin Carstens. He commented that a new formula for the Fund's voting shares would completed by October 2017. The goal being to increase the percentage of emerging market and developing countries. This has been a longtime concern that emerging countries are not equally represented, Mr. Carstens is well equipped to chair the panel and has the intellectual heft to garner the respect of all participants.

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