IMF meetings end with Greece unresolved, deflation fears eased
[WASHINGTON] It's springtime in Washington, and that means several things. The sun shines on the National Mall, tulips bloom on the White House lawn, and central bankers and finance ministers from around the world meet to discuss the global economy in all its glory and disarray.
If you weren't following the International Monetary Fund and World Bank's April 17-19 meetings, here's what you missed.
1. Greece is still a headache
The Greek government's anti-austerity stance isn't doing it for the nation's European peers, and that was a constant topic at this years' meetings. Germany and others are pushing Greece to work harder to patch up its debt-laden economy before they will release another tranche of aid to avoid a Greek default.
Also at stake: Greece's position in the 19-nation euro area. Talk about the situation abounded. Progress? Not so much. "Nothing has changed," French Finance Minister Michel Sapin told reporters on Saturday. "We're in the same situation at the end of these meetings as at the beginning."
2. Deflation isn't so scary
Many developed economies entered 2015 concerned about impending deflation - oil prices had plunged and global growth remained subdued. Those fears may be fading. "The risk of that prolonged deflationary episode is diminished," said David Lipton, the IMF's No. 2 official.
ECB Executive Board member Peter Praet said he sees indications supporting a coming pickup, and Bank of Japan Governor Haruhiko Kuroda sees prices firming.
3. Strong dollar destabilises
The US dollar's rise means a weaker Japanese yen and euro, and diverging monetary policies could further shake up values. Volatile currencies are a threat to the improving world economy, the Group of 20 said in a statement after talks in Washington on Friday. They even said that capital controls can be used "as appropriate" to deal with the big flows in cross- border funds.
Christine Lagarde, managing director of the IMF, on Wednesday cited a new acceptance of capital controls as a recent change in the fund's thinking, saying they can be used "if nothing else works," though they shouldn't be a substitute for needed macroeconomic adjustment.
4. Preparing for higher Fed rates
Some central bank heads - India's Raghuram Rajan and Malaysia's Zeti Akhtar Aziz among them - say they're ready for a rate rise. Mr Rajan told reporters that the impending Fed increase, which could come as early as June, has been well broadcast. Mr Zeti said in an interview that flow reversals have already started in anticipation of higher rates. At the meetings, there were "increasing views that if it occurred earlier it would be better," Mr Zeti said, because volatility arises from uncertainty. "I believe that when this interest-rate adjustment occurs, conditions will actually stabilise."
5. China's gaining clout
The Asian Infrastructure Investment Bank, a proposed Chinese-led multilateral fund that's gained support in the region and from nations around the world - including Germany, France, Italy, and the UK - was a big point of discussion at the meetings. Former US Treasury Secretary Larry Summersin a column on April 5 said the past month might mark "the moment the United States lost its role as the underwriter of the global economic system."
Current Treasury chief Jacob Lew said Saturday that the US want to collaborate with the AIIB and hasn't ruled out joining, but the fact remains that the organization will be headquartered in Beijing, instead of cozily in DC alongside the IMF and World Bank.
6. New world order?
Where did all the protesters go? While past IMF confabs drew thousands of opponents, decrying everything from globalization to banks to pollution, delegates strolled down Pennsylvania Avenue this year unimpeded. It seems the protesters have turned their focus to fighting corporate greed and other causes rather than criticising the IMF and World Bank. They're gathering on social media websites and sending tweets, rather than marching in the streets. Elke Koenig, a European official attending the talks, had another explanation for the absence of dissidents. "Probably the weather is too nice," she said.
BLOOMBERG
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