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 Despite $7 trillion in quantitative easing from banks in industrial
nations since the global financial crisis, the world is stuck in a
"new mediocre" growth pattern, IMF chief Christine Lagarde said on
Thursday.
In a bid to shore up finances and punish companies that arbitrage
tax regimes, governments pushed ahead with plans to improve tax
collection.
The IMF meeting comes as the Bank of Japan looks poised to extend
its money printing program, known as quantitative easing, as it
stares down the barrel of a fifth year of recession.
The European Central Bank is also expected to extend quantitative
easing, while the two major central banks closest to raising rates,
the U.S. Federal Reserve and the Bank of England, are holding their
fire.
"It is not the kind of economy in which you can make a mistake,"
Bank of England Governor Mark Carney told the meeting.
For both the Fed and the Bank of England, inflation targets are far
out of reach, although both central banks insist they are ready to
hike rates. The Fed's chair, Janet Yellen, has said the U.S. central
bank is on track to raise rates this year.
Markets, however, are not pricing in hikes until next year for both.
The IMF has urged the Fed and the Japanese and European central
banks to wait for more signs of recovery before tightening. Lagarde
on Thursday repeated her plea to Yellen to stay her hand.
TURMOIL IN EMERGING MARKETS
Many emerging markets, once the world's fastest-growing economies
which had been expected to shape a new world economic order, are now
in turmoil. Brazil, Latin America's largest economy, is facing a
leadership crisis and is in recession. Russia is engaged in
conflicts in Ukraine, and Syria and has been hammered by low oil
prices.
China's growth is slowing, although Lagarde was optimistic that the
slowdown was manageable.
While the world's central banks' money-printing programs have
staunched losses in the financial sector, they have failed to reach
their goal of boosting global credit.
With widening current account balances and excessive lending to
local companies, the IMF estimates that emerging market companies
are over leveraged by the equivalent of 15 percent of their economic
output, raising the risk of a sudden collapse in credit and of
banking crises.
The IMF cut its estimate for growth in emerging economies for a
fifth successive year this week, citing the collapse of the
"commodities supercycle" in which buoyant demand for raw materials
had boosted prices.
From a record of $145 per barrel in 2008, oil prices have fallen to
around $50, driving holes in the budgets of major producers like
Russia and Angola, among emerging economies.
Brazilian Finance Minister Joaquim Levy called on Thursday for
cash-rich pension funds and institutions to invest in infrastructure
projects, although few seem willing to do so as returns are
uncertain in a low-demand world with the risk of financial
contagion.
"There are plenty of savings in the world," he told the IMF meeting.
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Lagarde repeated the IMF's mantra for structural economic reforms
and for those countries with the room to raise spending to do so.
However, that appears politically impossible in the euro zone, while
in the United States, Congress is deeply divided.
Eurogroup Chairman Jeroen Dijsselbloem shrugged off dire predictions
on future growth, at least for Europe, and said policies there were
working.
"Already this year, except for Greece, all euro-zone countries will
have returned to growth," Dijsselbloem said.
His comments came after a stark message from former U.S. Treasury
Secretary Larry Summers, who has long warned of the risks of
"secular stagnation," or permanent damage to growth. Summers chided
policymakers for relying on the same old tools to boost demand.
"Traditional approaches of focusing on sound government finance,
increased supply potential and the avoidance of inflation court
disaster," he wrote in editorials published to coincide with the IMF
conference.
"Moreover, the world’s principal tool for dealing with contraction —
monetary policy — is largely played out."
The G20 group of leading emerging and developed economies is also
pushing at the IMF meeting to move ahead with measures to end a
situation that allows multi-national companies such as Apple Inc <AAPL.O>
and Vodafone Group Plc <VOD.L> to pay almost no tax on their profits
in many jurisdictions.
The Organisation for Economic Cooperation and Development estimates
the amount of money moved by companies into tax havens was $100
billion to $240 billion annually, suggesting tens of billions of
dollars in lost tax revenue.
That would be a tiny amount relative to the size of budget deficits
across the world.
U.S. Treasury Secretary Jack Lew urged countries to cooperate on
higher standards.
"The question here is on base erosion in taxes. Will countries agree
to have a high standard or will we revert to a system where there is
a race to the bottom?" Lew said.
(Reporting by Paul Carrel, Alonso de Soto, Mitra Taj, Lidia Kelly;
Writing by David Chance; Editing by Chizu Nomiyama, Meredith
Mazzilli and Leslie Adler)
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