Christine Lagarde – Managing Director, International Monetary Fund
Council on Foreign Relations
C. Peter McColough Series on International Economics
I. The Rise in Interconnectedness
Good morning. I’m delighted to be back in New York, and especially with old friends at the Council on Foreign Relations.
Today, I’d like to talk about the challenges facing the world economy, and the role of the IMF. Since it’s only my 22nd day as Managing Director, I’m still in listening and learning mode. But it is already clear to me that for the IMF to be even more effective, it must understand even better the remarkable changes that are taking place in the global economy—and in particular, the dramatic rise in interconnectedness between countries. In other words, the IMF needs to bring an even more multilateral perspective to the advice it gives its member countries—especially the systemic economies, whose policies can have such a significant impact on the rest of the world. I will return to this point when I focus on the IMF.
II. Challenges Facing the Global Economy
But let me begin with three major challenges that I see facing the global economy today: sovereign debt, growth, and social instability. These challenges are intimately intertwined—and I will submit that it is only by solving all three that we can unlock strong, stable, and balanced global growth. Why is that? Because for sovereign debt to be sustainable, economic growth needs to be strong, but in a sustainable way. And for economic growth to be sustainable, it needs to deliver the stable social chemistry that holds societies together.
Let me turn to the first challenge—sovereign debt.
In Europe, fiscal problems in the periphery have revealed the risks posed by an incomplete economic and monetary union. As a result, the euro area as a whole is experiencing difficulties. Even the tough fiscal and structural measures adopted by the affected countries have not convinced markets that a lasting solution is in place.
Last week, eurozone leaders reached an important agreement to overcome these concerns. The package includes new financing for Greece, at much longer maturities and lower rates—terms that will also be available to the other crisis economies. The EFSF—Europe’s crisis financing tool—has been given greater flexibility in supporting member countries. The package also includes critical measures to strengthen economic governance in the eurozone.
The agreement shows that European leaders believe in the eurozone, and will do what it takes to secure its destiny. It has been welcomed by financial markets, as reflected in the stronger euro and lower peripheral bond spreads. But turbulence could easily resurface. For this reason, it is essential that the summit’s commitments should be implemented quickly.
I’m hopeful that the political courage shown by European leaders will soon be followed by bold fiscal action in the U.S. On the debt ceiling, the clock is ticking, and clearly the issue needs to be resolved immediately. Indeed, an adverse fiscal shock in the United States could have serious spillovers on the rest of the world. But more fundamentally, a credible fiscal adjustment plan is needed sooner rather than later. In Japan also, even though the situation is not as urgent, more ambitious measures are needed to deal with the very high level of public debt.
What will fiscal consolidation mean for growth? In the short-term, the impact is likely to be negative. Our research has found that a 1 percentage point cut in the deficit could lower growth by about ½ percentage point over two years. This is why measures that are legislated now—but only reduce deficits in the future, when the recovery is more robust—would be particularly helpful. But there is good news too: over the longer term, debt reduction can actually raise output by bringing down real interest rates and making room for tax cuts.
Another perspective on this issue comes from the IMF’s spillover analysis. Focusing on the United States, it finds that credible fiscal consolidation measures would likely have very modest contractionary effects on demand—and possibly even positive effects, as confidence improves.
This brings me to the second challenge—namely growth.
Overall, the IMF expects reasonable global growth in the near-term—about 4-4½ percent through 2012. But the recovery remains unbalanced, and risks are clearly to the downside.
Rapid growth in the emerging economies has been critical to sustain the global recovery—and reflects the pay-off from sound macroeconomic policies in recent years. But in some of these economies, signs of overheating are becoming more prominent. Staying ahead of the curve will be essential to avoid the possible hard landing if policy action comes too late.
Low-income countries have also been enjoying healthy growth. Here too, better macroeconomic policies have played a major role. But many of these countries are reeling from the surge in commodity prices. Earlier this year, the World Bank estimated that the rise in food prices had pushed an additional 44 million people into extreme poverty. And today, many countries in the Horn of Africa are facing potentially the worst food security crisis in decades. The IMF stands ready to help our low-income members deal with this crisis—and more broadly, as they seek strong, durable and inclusive growth.
Turning to the advanced economies, it is evident that the crisis has inflicted deep and long-lasting scars. To make up for the lost ground, a sea-change in policies is needed in many areas.
The United States could be facing another jobless recovery. Again, that’s why we’ve advised against fiscal consolidation that is unduly hasty—even as we stress the importance of getting a fiscal consolidation plan agreed soon. We’ve also recommended active labor market policies to stem the rise in structural unemployment, and measures to ease adjustment in the housing market (for example, mortgage relief).
In Europe, where job destruction has been much smaller, addressing competitiveness problems is a major issue. IMF analysis has found that the right reforms could lift annual growth by as much as ½ to 1¼ percentage points. Making labor and capital markets more productive will be essential. Deeper market integration will also play a key role.
Boosting growth in these economies is no small task. And the goal can’t simply be any growth—we need the right kind of growth, that creates jobs and lifts people across the socio-economic spectrum.
This is why we must deal with the third challenge—social instability.
In the Middle East and North Africa, we have seen how socially imbalanced growth contributed to the political upheaval. And in many emerging and developing economies, rising commodity prices are exacerbating social problems associated with high joblessness. In these countries, strong social safety nets can help protect the most vulnerable, while better education can improve job prospects.
Social problems are of major concern to advanced economies too. The young in particular are having a hard time finding work—with potentially lifelong implications in terms of employability and income. At the same time, the older generations are fighting to protect their health and pension benefits. Combine the two, and we may face a “clash of generations”, to borrow a term coined by the scholar David Rothkopf. This is why focusing on the right kind of growth is so important.
III. The Role of the IMF
So how does the IMF fit into all this? Over the last few years, the IMF’s role has grown tremendously. It was an intellectual leader during the crisis, with its early call for coordinated policy stimulus. It has been a flexible financial partner, reforming its lending instruments and making available a record amount of support, totaling about $330 billion. And it is helping build a stronger global economy, through its policy advice and technical assistance efforts.
But as the needs of our members change, we too must we adapt. I see four organizing principles for an IMF that remains relevant—and they all, rather conveniently, begin with C.
First, the IMF must be client-focused. Who are our clients? Arguably, our most important client is the international monetary system. The IMF’s Articles of Agreement mandate us to preserve its stability—with the ultimate goal of fostering a healthy global economy and increasing human welfare. But clearly, our member countries are also our clients. And we service them by providing policy advice, financial support, and technical assistance.
Some may see tensions between these two responsibilities. But in today’s highly interconnected global economy, domestic policies have in a way become external policies. And so by focusing on the policies needed to stabilize the system as a whole, the IMF can help its members find the policies best suited to deliver strong and stable growth over the long run.
Second, as I said at the outset, the IMF must understand better the connections—both between and within countries.
We are just completing a study of how policies in the world’s five most systemically important economies—China, the euro area, Japan, the United Kingdom, and the United States—affect stability in others. We found, for example, that a successful rebalancing of the Chinese economy—including a stronger social safety net, a liberalization of the financial system, and a stronger currency—would generate positive spillovers for the global economy. We also found that the adoption of a suitably ambitious regulatory and supervisory regime in the United Kingdom would strengthen the stability of the system as a whole.
There are also connections within countries that we must understand better—especially macrofinancial linkages. Here too, the IMF has stepped up its analytical work, and is contributing to efforts to build a macroprudential framework.
Third, the IMF must be comprehensive. When evaluating the strength of an economy, we need to look beyond the standard economic and financial criteria to make sure that we don’t miss other factors—such as social concerns, or political economy issues—that may threaten macroeconomic stability.
Now, does this mean that I intend to turn the IMF into the International Multi-Disciplinary Fund? Not at all. But we do need new thinking on the interplay between macroeconomics and these other dimensions, and we should draw more on outside expertise in this area.
Fourth, the IMF must be credible—both in how we work, and how we’re governed.
Candor and evenhandedness is essential for the IMF to be credible in its monitoring of economic policies. This means that all countries should get fair treatment from the IMF—fair in listening to their views, fair in evaluating their policies, and fair in reporting them to the world.
Credibility of our governance is also essential for the IMF to be effective. For too long, the IMF’s voting structure reflected the economic realities of bygone days. But this is changing. Last year, our members agreed to boost the voting power of the world’s fastest growing economies, such that the BRICs will be amongst our top ten shareholders. Getting these reforms implemented as soon as possible is one of my top priorities.
IV. Conclusion: The Spirit of Wisdom
I’d like to close today with some helpful advice from John Maynard Keynes—incidentally, a great fan of New York, who lobbied very hard for the IMF to be established here.
Speaking at the Savannah conference in 1946, Keynes expressed his hope that the IMF—along with the World Bank—would be blessed with three gifts from their fairy godmothers:
– A many-colored coat, as a perpetual reminder that they belong to the whole world and that their sole allegiance is to the general good;
– A box of vitamins, to encourage energy and a fearless spirit, that welcomes difficult issues and is determined to solve them; and
– A spirit of wisdom, patience, and grave discretion, so that their approach to every problem is absolutely objective.
These three gifts remain as essential for the Fund today as they were at its establishment.
So – I have bought a colorful new coat and have stocked up on vitamins. Now all I need is a spirit of wisdom! Thankfully, I can rely on the tremendous collective wisdom of the members of the IMF, of its Executive Board, and of its dedicated and talented staff. I also look to you, our friends at the Council on Foreign Relations, to share your wise counsel on the critical challenges facing the IMF—and the world—today.
U.S. inauguration turns poet Amanda Gorman into best seller
WASHINGTON (Thomson Reuters Foundation) – The president’s poet woke up a superstar on Thursday, after a powerful reading at the U.S. inauguration catapulted 22-year-old Amanda Gorman to the top of Amazon’s best-seller list.
Hours after Gorman’s electric performance at the swearing-in of President Joe Biden and Vice President Kamala Harris, her two books – neither out yet – topped Amazon.com’s sales list.
“I AM ON THE FLOOR MY BOOKS ARE #1 & #2 ON AMAZON AFTER 1 DAY!” Gorman, a Los Angeles resident, wrote on Twitter.
Gorman’s debut poetry collection ‘The Hill We Climb’ won top spot in the online retail giant’s sale charts, closely followed by her upcoming ‘Change Sings: A Children’s Anthem’.
While poetry’s popularity is on the up, it remains a niche market and the overnight adulation clearly caught Gorman short.
“Thank you so much to everyone for supporting me and my words. As Yeats put it: ‘For words alone are certain good: Sing, then’.”
Gorman, the youngest poet in U.S. history to mark the transition of presidential power, offered a hopeful vision for a deeply divided country in Wednesday’s rendition.
“Being American is more than a pride we inherit. It’s the past we step into and how we repair it,” Gorman said on the steps of the U.S. Capitol two weeks after a mob laid siege and following a year of global protests for racial justice.
“We will not march back to what was. We move to what shall be, a country that is bruised, but whole. Benevolent, but bold. Fierce and free.”
The performance stirred instant acclaim, with praise from across the country and political spectrum, from the Republican-backing Lincoln Project to former President Barack Obama.
“Wasn’t @TheAmandaGorman’s poem just stunning? She’s promised to run for president in 2036 and I for one can’t wait,” tweeted former presidential candidate Hillary Clinton.
A graduate of Harvard University, Gorman says she overcame a speech impediment in her youth and became the first U.S. National Youth Poet Laureate in 2017.
She has now joined the ranks of august inaugural poets such as Robert Frost and Maya Angelou.
Her social media reach boomed, with her tens of thousands of followers ballooning into a Twitter fan base of a million-plus.
“I have never been prouder to see another young woman rise! Brava Brava, @TheAmandaGorman! Maya Angelou is cheering—and so am I,” tweeted TV host Oprah Winfrey.
Gorman’s books are both due out in September.
Third on Amazon’s best selling list was another picture book linked to politics and projecting hope: ‘Ambitious Girl’ by Vice-President Kamala Harris’ niece, Meena Harris.
(Reporting by Umberto Bacchi @UmbertoBacchi, Editing by Lyndsay Griffiths. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)
Why brands harnessing the power of digital are winning in this evolving business landscape
By Justin Pike, Founder and Chairman, MYPINPAD
Delivery of intuitive, secure, personalised, and frictionless user experiences has long been table stakes in digital commerce, well before the era of COVID-19. As businesses harness the revolutionary power of digital technologies, they have pursued large-scale change to adapt to evolving consumer preferences (some more successfully than others, but that’s a blog for another day). Digital transformation is a term we hear repeatedly, and it looks different for each organisation, but essentially, it’s about utilising technology and data to digitise, automate, innovate and improve processes and the customer experience across the entire business.
As I said, this was already well underway but then came 2020 and no industry escaped the disruption of the coronavirus outbreak, which has had an indelible impact on businesses performance, operations, and revenue. Regardless of whether the impact of COVID has been very positive or very challenging, it has forced organisations globally to re-evaluate and re-orient strategies to adapt.
As lockdowns and pandemic-related restrictions continue to change daily life, this raises the question of how we can balance a dramatic shift to digital and the benefits it brings, while ensuring business continuity and innovation both during and post-COVID, and protecting everyone against fraud?
Digital is an essential survival tool, and even more so in a COVID world
No one could have predicted the dramatic digital pivot that has taken place over this year. Indeed, within weeks of the COVID outbreak cash usage in the UK dropped by around 50%. Digital solutions including delivery applications, contactless payments, mobile commerce, online and mobile banking have become essential components of a touchless customer experience in the era of social distancing. It’s no longer just about an enhanced and superior customer experience, it’s also about health, safety and survival.
In store, businesses have benefited from contactless payments enabling faster throughput and reduced need for consumers to touch payment terminals (therefore requiring greater cleaning, which degrades the hardware much faster). Mastercard reported a 40% increase in contactless payments – including tap-to-pay and mobile pay – during the first quarter of the year as the global pandemic worsened. Digital has also become an essential sales channel for many B2C brands. Where brick and mortar stores have been required to close, digital commerce enables continuity of customer relationships and revenue. This channel also provides brands with rich customer data, which can be used to enhance and personalise the customer experience and typically results in greater levels of engagement and uplifts in revenue.
Industry forecasts estimate that worldwide spending on the technologies and services enabling digital transformation will reach GBP 1.8 trillion in 2023 – a clear indication that the process represents a long-term investment and a global commitment to digital-first strategy. The key point here is that digital brings significant benefits, and regardless of COVID, is here to stay.
The challenges that rapid digital transformation brings to businesses
Regardless of whether businesses are operating in developed or less-developed economies, these times of crisis have levelled the playing field in the sense that all businesses are facing similar issues. Access to products and supplies, maintaining customer relationships, accelerating sales for some and declining sales for others, health and hygiene are just a few of the unique challenges brought about by COVID.
Many businesses in physical environments have had to swiftly implement changes to significantly reduce safety risks for staff and customers, such as contactless payments, mobile ordering and delivery options. But with these changes come a host of other benefits of digitisation, such as faster transactions, and reduced human error at the point-of-sale.
The reliance on technology, however, can also expose organisations and consumers to certain vulnerabilities. In particular, the risks of fraud and cybercrime have dramatically increased since the onset of the pandemic as scammers have taken advantage of digital technologies to target both businesses and individuals.
As a McKinsey report illustrates, new levels of sophistication in the activities of fraudsters have placed more pressure on companies that have been previously slow to go digital, bringing “into sharp relief how vulnerable companies really are”, and damaging the financial health of small and large businesses. In fact, the Bottomline 2020 Business Payments Barometer reveals that only one in 10 small businesses across the UK report recovering more than 50% of losses due to fraud.
But take these stats with a grain of salt. While it is important to be aware of the risks and challenges this new business landscape brings, it’s equally as important to have a lens firmly across your own business, industry and audience, and to identify the changes you can make internally to mitigate risk as well as improve your customer experience. Where can you make some quick wins? Do you have the right skillsets internally to achieve what you need to achieve? What technology is out there that will enable your business goals? There are tech companies like MYPINPAD that are making huge strides in software development, which will transform businesses globally.
A digital world post-COVID
Almost a year in, the line between business success and failure remains fragile. However, an ongoing transition towards greater digitisation will be the difference between survival and the alternative.
There is a wide range of initiatives businesses can implement to weather this storm. If we look at the space MYPINPAD operates within, secure digital consumer authentication is crucial to the ongoing success and security of not only financial products but also identification and verification across a range of different industry verticals. Shifting the authentication of consumers securely onto mobile devices enables businesses to completely reshape their customer experiences. By bringing together a more seamless, frictionless customer experience, accessibility, privacy, security and access to consumer data, businesses are able to drive digital transformation across day-to-day activities.
Against this backdrop, software with stronger security standards continue to play an ever more vital role in supporting society, protecting consumers and businesses from the increase in risks that rapid digitisation brings. Already, merchants can deploy PIN on Mobile technology from companies like MYPINPAD, onto their smart devices to speed up the digitisation process many are now tackling.
Essentially, opening up universal payments and authentication methods that feel familiar, for both online and face-to-face transactions, will be key to opening up a world of possibilities when it comes to redefining how businesses engage with consumers.
Brexit responsible for food supply problems in Northern Ireland, Ireland says
LONDON (Reuters) – Food supply problems in Northern Ireland are due to Brexit because there are now a certain amount of checks on goods going between Britain and Northern Ireland, Irish Foreign Minister Simon Coveney said.
British ministers have sought to play down the disruption of Brexit in recent days.
“The supermarket shelves were full before Christmas and there are some issues now in terms of supply chains and so that’s clearly a Brexit issue,” Coveney told ITV.
The Northern Irish protocol means there are “a certain amount of checks on goods coming from GB into Northern Ireland and that involves some disruption,” he said.
(Reporting by Guy Faulconbridge; Editing by Tom Hogue)
Top 8 Tax Scams to Watch Out For
It is tax time and that means finding the best way to file your taxes and to get a refund...
CEO Hisham Itani and Resource Group Recognized in the 2020 Global Banking & Finance Awards®
Global Banking & Finance Review has awarded Hisham Itani the Chairman and CEO of Resource Group, Technology CEO of the...
Euro zone business activity shrank in January as lockdowns hit services
By Jonathan Cable LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to...
Volkswagen’s profit halves, but deliveries recovering
BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car...
Global chip shortage hits China’s bitcoin mining sector
By Samuel Shen and Alun John SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines...
Iran’s oil exports rise ‘significantly’ despite sanctions, minister says
DUBAI/LONDON (Reuters) – Iran’s oil exports have climbed in recent months and its sales of petroleum products to foreign buyers...
Nissan to source more UK batteries as part of Brexit deal ‘opportunity’
By Costas Pitas LONDON (Reuters) – Nissan will source more batteries from Britain to avoid tariffs on electric cars after...
Muted recovery for UK retailers in December ends worst year on record
By David Milliken and Andy Bruce LONDON (Reuters) – British retailers struggled to recover in December from a partial coronavirus...
Chinese phone maker Honor partners with key chip suppliers after Huawei split
By David Kirton SHENZHEN, China (Reuters) – Chinese budget phone maker Honor said on Friday it had signed partnerships with...
Oil down $1 as China COVID-19 cases trigger clampdowns
By Noah Browning LONDON (Reuters) – Oil prices fell on Friday, retreating further from 11-month highs hit last week, weighed...