IMF Managing Director Christine Lagarde Opens 4th Annual Bertelsmann Foundation – Financial Times Conference
WASHINGTON, DC (April 18, 2012) - International Monetary Fund managing director Christine Lagarde called for a "Washington moment", in which the global community can come together and commit to improving the world economy by sharing knowledge, understanding and best practices, in the opening speech of "Making a Comeback: A Return to Jobs & Growth", the Bertelsmann Foundation's fourth annual economic conference.
"I believe we are at a defining moment where if countries decide they will cooperate, that they will use the institutional knowledge, the bank of information that is available to actually progress together, they can actually change the course of things," Lagarde told an audience gathered at Washington, DC’s National Portrait Gallery for the conference's opening reception. "If they don't, then the picture we will be looking at shortly is not exactly a pretty one."
Lagarde was introduced by Bertelsmann Foundation President and CEO Gunther Thielen as "a very special leader, and someone known for her many impressive firsts". Before Thielen spoke, Bertelsmann Foundation executive director Annette Heuser graciously welcomed attendees, thanking them for their support and singling out media partners the Financial Times and China Daily, as well as mentioning honored attendee Ursula von der Leyen, German minister of labor and social affairs.
Speaking on the eve of the World Bank and IMF annual meetings, Lagarde expressed optimism at the IMF's recently released World Economic Outlook, with slightly higher global forecasts; improved manufacturing and employment in the U.S; and impressive European packages put in place to restore stability and fiscal discipline.
"We are seeing a situation which is slightly improved compared with January," she said. "Yet, the situation is very fragile and we can see it. All it takes is looking at spreads of some of the Euro area members and the evolution of yields."
Even though the IMF's stated purpose is financial stability and national economic policies aim to boost growth, the ultimate goal of all these policies is to provide jobs, she said. "At the end of the day what matters is that we can have as many people as possible with a job," she said. "The ultimate purpose is to have people off the street with a job and the security that comes with a job. Of course it will require growth. Of course it will require stability."
Currently, there are over 30 million more unemployed people compared with pre-crisis levels, 13 million in the US and 17 million in Europe. In the Arab countries as well, "there are huge needs for jobs, particularly with this generation that is coming up with expectations of a transition," wanting to be useful to their countries and to be able to afford a family, she said.
"I would like to focus on where countries, regions, institutions can actually and have actually learned from each other," Lagarde said, citing benchmarking, best practices and monetary policy.
She gave the examples of Germany and Ireland as evidence of effective labor-market policy. In Germany, skilled employees have been retained in many companies. In Ireland, strong incentives have helped train unemployed people and then nudged employers to hire those newly trained individuals.
Still, until the housing crisis is fully resolved, households that are burdened with debt — with 1.5 million delinquent US mortgages — will fail to contribute to growth. "I strongly believe that some countries, including the United States of America, have to really deal with the housing problem," she said. "Those that can actually sustain growth, that can help kick start and strengthen growth are economic agents, households."
As an example of inclusive growth, she praised Brazil for organizing cash transfers to help "a lot of the underprivileged improve their standard of learning and living". An IMF report estimated that if all countries adopted similar policies, growth could be extended by 50 percent.
Turning to her hoped-for "Washington moment," she urged the nations of the world to cooperate in three areas: financial-sector reform, demand and the IMF safety net.
In the first area, while much has been done to repair the financial sector since the crisis, much work remains. Lagarde urged that agreed-upon measures need to be implemented, and she expressed concern about the lack of progress in reforming the "vastly opaque" derivatives market and delayed convergence in accounting standards. "That's one area where cooperation is absolutely needed," she said.
Second, those countries that have excessive deficits must save more. Those with too much surplus must consume more. "This is happening a little bit. We're seeing numbers vary in the right direction, but we need to see more," she said.
Finally, she urged support of the IMF initiative to expand its ability to respond to the needs of all 188 members, through a global firewall. More than US$316 billion has been committed, "and I have more in the pipe[line]," she said. "I go around with my bag and I fill it up, slowly but surely."