The autumn meetings of the IMF and World Bank conclude with a chill
As global leaders meet, emerging-market anxiety abounds
By J.P and M.R. | LIMA
AS LIMA bid farewell to the annual jamboree of the International Monetary Fund and World Bank on October 11th the leaden sky that greeted the global economy’s great and good earlier in the week had cleared. But among the 12,000 delegates, policymakers, their retinues, academics and do-gooders departing the Peruvian capital, the mood was distinctly unsunny. Clouds will continue to hang over the global economy in the foreseeable future, all agreed; anxieties over China’s slowdown, weakening emerging markets, and the effects of the Federal Reserve’s decision to hold steady on interest rates have done nothing to dispel them.
At least, quipped those optimistically inclined, sentiment on October 11th was no worse than on October 6th, when the IMF cut its forecast for global growth this year to 3.1% and to 3.6% next. Indeed, the meetings that took place in Lima brought little new information. There were the usual platitudes about the need for structural reforms. There were expressions of "deep disappointment" over the American Congress’s sad refusal to ratify the 2010 reform of the global financial institutions to allow greater say to emerging economies.
Christine Lagarde, the IMF’s boss, presented a new "global policy agenda", pledging to respond to problems rapidly and in a co-ordinated fashion tailored to individual member countries’ circumstances. Jim Yong Kim, president of the World Bank, urged countries to keep improving access to and quality of education and show ambition in combating climate change, which hits the poor hardest. G20 finance ministers were a touch more constructive, promising brisk implementation of a plan, drawn up with the help of the OECD club of mostly rich countries and adopted unanimously on October 9th after nearly three years of deliberations, to stop companies from shunting profits to tax havens.
Yet all this was overshadowed by a litany of concerns. Chief among them was China. Talk to macroeconomists and you hear confident statements about the Asian giant’s shift from investment- to consumption-led growth, and the inevitable deceleration that this will engender. But ask Chinese policymakers—and many direct investors there—and they are equally adamant that the country can keep growing at 6-7% a year. Both cannot be right. The Federal Reserve’s decision to start raising American interest rates, possibly this year, may be the most trailed in monetary-policy history, but it is far from clear that markets won’t overreact once it actually happens. If that were not enough, geopolitical worries—over the migration crisis, Russian sabre-rattling or the horrific terrorist attack in Turkey’s capital on October 10th—are also on the rise.
Officials put on a brave face, repeatedly insisting that the world is broadly better prepared to weather the downturn than in the past. Many developing countries in particular have floated their currencies and built up huge foreign reserves to stave off a balance-of-payments crisis of the sort that regularly clobbered them until the 1990s whenever prices of exports collapsed and foreign investors took fright.
The problem is that the current concerns are not over balance of payments deficits but growth. The three engines which have pulled developing economies along in the past decade—exports, public and private investment—are sputtering. World trade is growing slower even than global output. Tax receipts have been hit by falling commodity prices and depressed activity, squeezing government spending.
Colombia’s finance minister, Mauricio Cardenas, spoke of "intelligent austerity"—tax rises, spending cuts and slightly bigger deficits—but not all countries have fiscal room to embrace it. Businesses are putting off investment until uncertainties lift. At the same time, foreign investors are pulling capital out of emerging markets for the first time in years. Not all countries are equal. But "the bar for an emerging market to distinguish itself has moved higher," David Fernandes of Barclays, a bank, told financiers at a parallel powwow of the International Institute of Finance, a bankers’ association.
Peru certainly distinguished itself by throwing a fine bash. The decision to stage the shindig on a public holiday that fell on October 8th and decreeing another one for the following day, proved inspired. Some 750,000 people, or one in ten residents, are thought to have escaped the city for the long weekend. Traffic in the perpetually clogged capital was preternaturally brisk as a result. If only decongesting the world economy were so simple.
