In the spring edition of its World Economic Outlook, the International Monetary Fund forecasted an economic growth rate of 3.5% in 2017, compared to 3.1% in 2016. They stressed the necessity of free trade policy for a healthy global economy in their outlook, especially in a time when protectionism is on the rise. IMF Managing Director Christine Lagarde echoed these points in her speech on the outlook, saying that six years of disappointing growth should now shift to stronger economic conditions. However, the global economy will face challenges from political uncertainty, protectionism, weak private investment, and decreased productivity due to aging populations. The IMF advocated for structural reforms to support innovation, inclusive growth, and increased cooperation in the face of global challenges.
The emerging and developing economies have driven global recovery in recent years, and they will continue to contribute more than three quarters of the global GDP in 2017 – Christine Lagarde
These sentiments were echoed on April 19th at the “Growth Strategies in a De-Globalizing World” ministerial dialogue, held during the Spring meetings of the IMF and World Bank. The dialogue was co-sponsored by The Institute for International Economic Policy, The Growth Dialogue, and GW School of Business. The Growth Dialogue’s Managing Director, Dr. Danny Leipziger, Professor of International Business and International Affairs, sat down with a group of distinguished panelists to discuss the effects of shifts in the global economic landscape and their implications for national growth strategies. The panelists included:
Hon. Mauricio Cárdenas, Minister of Finance & Public Credit, Colombia
Hon. Sri Mulyani Indrawati, Minister of Finance, Indonesia
Hon. Santiago Peña, Minister of Finance, Paraguay
Dr. Hyun Oh-Seok, Former Minister of Strategy & Finance, Korea
Dr. Joaquim Levy, Managing Director, World Bank
Dr. Adam Posen, President, Peterson Institute for International Economics
The panelists first discussed whether they felt the world faces a different set of circumstances than in the early 2000s, and if these shifts require the world to change its economic strategies. Mauricio Cárdenas focused on his home country of Colombia, explaining the low growth rate that has plagued the region. He emphasized a need to think creatively to solve problems associated with poor growth, such as poverty and unemployment. He said that Colombia cannot fall into protectionist policies which will only mitigate growth, and should instead focus on creating stability at home and preparing for expanding international relationships. Sri Mulyani Indrawati agreed with Cárdenas, saying that Indonesia must also focus on improving domestic conditions to appear a more attractive investment to other countries. Santiago Peña of Paraguay spoke on the long term plan for economic growth in his country, featuring poverty reduction, inclusive economic growth, and new infrastructure.
In an addendum to the previous question, the panelists were asked by the moderator, Prof. Leipziger, about how institutions might need to change their advice since the panelists had focused on domestic growth having to pick up where international trade is not sufficient. Joaquim Levy said that we live in a time in which globalization is more important than it was in the past, and that institutions can help improve economic conditions by implementing programs and best practices that proved effective in one country in others that need help as well. Dr. Hyun Oh-Seok pointed to the concern of pushback against globalization, but said that there are no “one size fits all” policies that can be established by global institutions. Adam Posen saw solutions in public investment, saying that debt is not always bad. He also said that it is important to think in the short term to avoid recessions, and that countries must be willing to open themselves up to competition.
The next question was specifically focused on Indonesia, asking what the country had done correctly and why the global economy has been working in their favor. Indonesian Minister of Finance, Sri Mulyani Indrawati, started by saying that Indonesia’s investment in human capital and infrastructure has succeeded in promoting growth. Decentralization and democratization have largely impacted the accelerated growth in Indonesia as well. However, productivity has been stagnant since 2000, and Indonesia has shifted to a commodity-based economy. She outlined some steps to economic success:
- Diversification away from natural resources, introducing more competition and investment in non-resource based industries
- Mitigation of corruption
- Sustainable growth that includes all economic classes
The discussion then shifted to the recent proposal by the Inter-American Development Bank to create a regional trading bloc in Latin America, based on the argument that Latin America could mirror Asia’s growth. The panelists were asked if the new trade arrangement is viable after so many similar arrangements have failed, and whether the trading bloc was on the policy agenda. Mauricio Cárdenas agreed that the new trade bloc was a viable option, as intra-regional trade is highly important and similar trade blocs have seen success in Europe and Asia. He said that Latin America needed to build better ways to connect countries together with new trade routes. Santiago Peña suggested that Paraguay’s failure has been that economic processes have been driven by politics. Peña looked to Ministers to take charge and shape the economic agenda rather than political forces. Joaquim Levy seemed optimistic, saying that Latin American countries are investing in their neighbors despite decreasing trade.
The final question posed to the panelists focused on excess savings and infrastructure needs. They were asked if it is sustainable for a country like Germany to run a current account surplus of 10% of GDP over a long period of time. Hyun Oh-Seok responded that emerging economies are sensitive to balance of payments, and that the degree of surplus is crucial in these markets. Adam Posen stepped into the conversation to say that there cannot be excess surpluses in Germany and China without fiscal restraint. Pondering if any constructive actions can take place, he said that the World Bank should continue its mission to talk about global public goods.
Danny Leipziger gave final lessons to take away after the discussion, noting that infrastructure investment is important for trade integration and highlighting the links between urban infrastructure and inequality. He said that with efficient infrastructure investments, there can be focus on creating efficient plans as opposed to merely finding domestic substitutes for lagging export demand. Moving forward, the global community must work to improve trade agreements, while national policies need to focus on greater competition to stimulate new industries and improve global economic growth.