The Global Economic Challenges and Global Solutions

Good morning. I'm glad to be here. I would like to thank the Wilson Center for your kind invitation, and I would particularly like to express my deep appreciation to Jane Harmon. In the long, excellent career, Jane worked in the executive power, scientific, legal, and, of course, the Congress, where she served nine terms of the House of Representatives. He was a dedicated civil servant. Thank You, Jane.

I can't think of a better place for my first big speech in Washington than the managing director of the IMF. It was Woodrow Wilson who supported the cause of multilateralism and global brotherhood. The seeds he planted were produced in the post-war milieu from which the IMF and its sister organizations were formed. Because the focus of our mandate is a simple but effective idea-that cooperation can bring not only economic stability but also a better future for everyone.

This idea has never been more important.

We must be experiencing great economic distress. Exactly three years after the collapse of Lehman Brothers, the economic sky seems unsettling and turbulent, as global activity slows down and risks increase.

We are entering a dangerous new phase of the crisis. Without a collective definition, the trust that the world desperately needs will not return.

Woodrow Wilson once warned me that "the thing is that light, not heat". I think it's the IMF's job to see and show the light when the picture seems so dark and illuminate the most important economic problems—but it can also help to turn the heat up sometimes!

With that in mind, let me offer you:

I believe there is a way to a sustainable recovery, much narrower than before, and narrower. We need strong political will to navigate around the world-leadership over the brinksmanship, cooperation over competition, action overreaction.

Global Outlook

Let me give you a brief overview of global economic development. Our projections are coming out next week, so today I'm limiting myself to broad trends.

Overall, global growth continues but slows. In particular, developed countries are faced with an anemic and bumpy recovery with unacceptably high unemployment. The debt crisis in the euro area has worsened further. Financial burdens are growing. And I repeat, without collective, courageous action, there is a risk that large economies will slide back rather than forward.

While many developed economies face this cold wind, many emerging economies face too many heat-inflationary pressures, strong credit growth, increasing current account deficits.

Low-income countries are experiencing sufficient growth, but remain extremely vulnerable to economic turmoil from other parts of the world—also due to price fluctuations with high social costs. I would like to pay particular attention to people suffering from a devastating disaster in the Horn of Africa. These countries urgently need the help of the international community.

We must also keep in mind the Middle East and North Africa-a historic transformation in which people want a better life and a decent job. I am pleased to inform you that the IMF has recently recognized the Transitional National Council as the Government of Libya, and we are prepared to provide technical assistance, political advice and, if necessary, financial support to the Libyan people.

What's it say?

Today's speech is entitled "global economic challenges and global solutions." But before we talk about solutions, we need to be aware of the problems. Three different, although related issues would be isolated: balance sheet pressure, weak growth, instability and social tensions at the heart of the global economic system.

The most important short-term problem in developed countries is that the balance sheet pressure is on the brink of recovery. There's still too much debt in the system. There is uncertainty in developed economies, European banks and US households. Weak growth weak balance sheet-governments, financial institutions, households—feed each other negatively, heated confidence crisis holding back demand, investment, job creation. This vicious cycle is gaining momentum, exacerbated by political indecision and political turmoil.

This refers to the second longer-term problem-the risk of nuclear instability. In our interconnected world, economic shocks in any country of the world can quickly and strongly reverse, especially if they come from systemic economies. The IMF's studies have shown that financial relations quickly and widely transmit such shocks. Due to ongoing debt problems, risks to financial stability have increased significantly.

The third problem concerns social tensions bubbling under the surface. I see here a series of woven threads rooted in high unemployment, especially in the younger generation; austerity measures that affect social protection; perception, injustice, " Wall Street "taking into account "Main Street"; and heritage growth in many countries, which are mostly benefited from the upper circles of society. These issues give greater impetus to the crisis of confidence.

What's the solution?

So, what can you do? Today, I would like to propose four important political dimensions necessary to ensure recovery and economic stability—repair, compensation, reform, reconstruction, '4 R'.

First, repair. First of all, we need to reduce some of the balance sheet pressures that could jeopardize the recovery—States, households, banks.

On the other hand, developed countries need credible medium-term plans to stabilize and reduce public debt. It's the first one. However, too fast consolidation may hinder recovery and impair employment prospects. The challenge is therefore to navigate between the two dangers of losing credibility and undermining growth. There's a way to do this. Credible measures that result in and record savings in the medium term create room for growth by allowing for a slower pace of consolidation.

Of course, the exact route is different for all countries. Today, some have no choice but to reduce the deficit, especially when they are under market pressure. Others have to stick to their adjustment plans, but they have to be ready to change the course if growth continues to deteriorate. Others are probably pushing it too hard today, and they can slow down a little bit.

Another point - it's not just what the setting is, it's how. In the short term, policymakers should focus on policies with the highest impact, create jobs and increase growth and take into account allocation considerations. The type of adjustment is also important in the medium term, as budgetary plans aim to support growth. I'm thinking about issues like tax reform, extending the foundations. Similarly, these reforms will be essential for the sustainability of long-term debt in virtually all developed economies.

The policy should also focus on budgetary and bank balance sheets.

In the light of the employment crisis in the United States, I welcome President Obama's recent proposals to combat growth and job creation. At the same time, it remains essential that policymakers clarify their medium-term plans to put public debt on a sustainable path. In addition to this important employment agenda, it is important to mitigate congested households through measures such as more aggressive divestiture programs or the use of low-interest rates.

In Europe, States must firmly resolve their financing problems through credible fiscal consolidation. In addition, each bank must have sufficient capital buffers to support growth through private sector loans.

The second " R " is reform. When it comes to the fact that the economy is moving today, the reform is about establishing a more stable economic future for tomorrow.

Under the banner of reform, I would take on the social dimension. Employment must play a central role. It not only supports demand but also supports human dignity. Dostoyevsky said, " without meaningful work, men and women lose their reason for being." This is particularly important for those boys who risk losing the race even before the sound of the starting gun. We must also strive for inclusive growth that benefits society as a whole.

The third"R" is balance. This has two meanings. Firstly, this means that demand will move from public to private if the private sector is strong enough to bear the burden. That hasn't happened yet.

The second reorganization concerns the conversion of global demand from foreign deficit to foreign surplus. The idea here is simple: with lower expenditure and greater savings in developed economies, larger emerging economies need to take up slack and start to provide the demand for global recovery. But the compensation so far is largely due to slower growth. In some countries, compensation is withheld by policies that consider internal demand growth to be too slow and currency appreciation to be too low. Some other emerging economies are experiencing too rapid capital inflows.

Lack of proper compensation hurts everyone. In our networked world, every thought of separation is a mirage. If advanced economies go into recession, emerging economies will not escape. No one will. Compensation is global, but it is also of national interest.

Woodrow Wilson would have appreciated that.

My fourth and Last "R" are being rebuilt. I am thinking, in particular, of low—income countries that need to rebuild their economic policy buffers, including fiscal positions, which have served them well during the crisis to protect themselves from future storms. This will also help to create space for growth-promoting public investment and social security nets, for example by allowing countries to use targeted subsidies to protect the poor from price fluctuations in the commodity market, causing minimal damage to fiscal sustainability.

So, these are my 4 Rs restoration. But I think I have a five. "R" - the role of the IMF.

I said earlier that the world was entering a dangerous new phase of the crisis. In these circumstances, together with 187 member states, the fund is in a unique position to promote collective action among its global members. How?

Our monitoring capabilities can help identify the risks arising from the networking of farms, but also the opportunities.

Political advice can help shed light on key issues-Growth, nuclear safety gaps, flood, as well as the guide to international cooperation, especially when we use the technical assistance countries wisely.

Our lending can give countries space to deal with various immediate challenges—emerging economies exposed to external instability, countries with urgent or temporary needs, and vulnerable low-income members.

Beyond the crisis horizon, the fund may also contribute to the development of a safer and more stable international financial system. This is our basic mission.

Of course, we're not smug at all. Like everyone else, in the face of the new challenges facing the world, we need to improve our game to respond-to serve our global membership more effectively. I'll talk more about it at our annual meetings next week - so stay with us.

Conclusion

Finally, this is not a time for retreat, semi-measures or confusion. Again, Woodrow Wilson said the most when he remarked, " caution is a confidential agent of selfishness.”

Politics must act together. You need to get back the 2008 or 1944 spirit. The Wilson spirit-the belief that the whole is greater than the sum of the parts. 

If we seize the moment, we can get out of this crisis and restore strong, sustainable and balanced global growth.

The road is clear. The time has come. We must act.

- Thanks. - yeah.