Global Elites Step Up Defense of Openness as Populism Rises

EghtesadOnline: Global policy makers are stepping up their resolve to combat an isolationist backlash that threatens to undermine years of opening borders to trade and investment.

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09 October 2016

“The global economy has benefited tremendously from globalization and technological change,” the IMF’s top advisory panel said in a communique released on Saturday after meeting in Washington. “However, the outlook is increasingly threatened by inward-looking policies, including protectionism, and stalled reforms.”

Flagging public support for globalization has been a prominent topic of discussion this week among finance chiefs and central bankers convening in the U.S. capital for the International Monetary Fund and World Bank’s annual meetings. The IMF warned in its latest economic outlook that rising political tensions over open markets and free trade could undermine a recovery already lacking a growth engine, reports Bloomberg.

This week’s sharp drop in the British pound heightened concerns about the ongoing fallout from June’s decision by U.K. voters to leave the European Union. U.S. Republican presidential nominee Donald Trump -- whose campaign was roiled Friday by the release of a video that includes him discussing groping women -- has promised to impose tariffs on countries such as China. Both he and his Democratic opponent, Hillary Clinton, oppose a trade pact with Pacific Rim nations signed by President Barack Obama, but not yet approved by Congress.

Globalization’s Defenders

The defense of economic openness has been an increasing hallmark of international gatherings this year, most recently expressed at the Group of 20 leaders’ summit in Hangzhou, China, last month. Saturday’s International Monetary and Financial Committee statement makes the case for globalization more stridently than the final communique in Hangzhou, which said nations would “work harder to build an open world economy, reject protectionism, promote global trade and investment.”

In a rebuke to those advocating a turn away from trade, the members of the IMF panel redoubled their commitment to “maintain economic openness and reinvigorate global trade as a critical means to boost global growth.”

“We commit to design and implement policies to address the concerns of those who have been left behind and to ensure that everyone has the opportunity to benefit from globalization and technological change,” according to the statement by the IMFC, a panel of 24 members that advises the IMF’s board of governors on policy issues. It includes representatives from the U.S., China, Japan and Germany.

Mexico’s central-bank governor, Agustin Carstens, chairs the panel. He said committee members discussed trade in a comprehensive manner, addressing not only the decline in trade growth globally but also the recent imposition of new trade barriers.

Some of the protectionist measures are the “result of some members of the populations in different countries feeling that they have been left behind,” he said at a press briefing.

Tepid Growth

The global recovery remains slow and uneven, with growth expected to pick up only slightly next year, mostly on account of emerging markets, the panel said. Persistently low growth has exposed “underlying structural weaknesses, and risks further dampening potential growth and prospects for inclusiveness.”

IMF nations reiterated their commitment to use all policy tools -- including monetary policy and fiscal policy, as well as structural reforms -- to boost growth. They also restated their pledge to refrain from competitive devaluations of their exchange rates.

Monetary policy should remain loose in advanced economies where inflation is still below target and output gaps remain negative, keeping in mind central banks’ mandates, the committee said. All countries should use fiscal policy flexibly and make tax policy and public spending more growth-friendly, and structural reforms are key to raising potential growth and must be reinvigorated, the panel said.

“We certainly have decided to come out more loudly to say ‘Central bankers can’t be the only game in town. Let’s get on with it, and see some action from the other authorities,’" IMF Managing Director Christine Lagarde told reporters.

The committee said it supported work by the IMF to assess how much space countries have to enhance fiscal policy, as well as research into the implications and side effects of very low or negative interest rates. The panel said it is also looking forward to more work on the impacts of globalization, emerging technologies and digitization, as well as exploring the reasons behind rising inequality in some countries.