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Download PDF (2.8 Rebalancing A Roadmap for Economic Recovery EDITORS Hamid Faruqee and Krishna Srinivasan INTERNATIONAL MONETARY FUND ©International Monetary Fund. Not for Redistribution © 2013 International Monetary Fund Cataloging-in-Publication Joint Bank-Fund Library Global rebalancing : a roadmap for economic recovery/ editors, Hamid Faruqee and Krishna Srinivasan. — Washington, D.C. : International Monetary Fund, 2013. ix, 159 p. : ill. ; cm. Includes bibliographical references and index. 1. Economic policy. 2. Economic development. 3. Financial crises — Prevention. 4. Equilibrium (Economics). 5. Balance of trade. 6. Debts, External. I. Faruqee, Hamid. II. Srinivasan, Krishna, 1965– . III. International Monetary Fund. HD87.G56 2013 ISBN: 978-1-47557-366-4 (paper) 978-1-47557-827-0 (ePub) 978-1-47559-164-4 (Mobipocket) 978-1-47554-877-8 (PDF) Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its members. Please send orders to: International Monetary Fund, Publication Services P.O. Box 92780, Washington, D.C. 20090, U.S.A. Tel.: (202) 623-7430 Fax: (202) 623-7201 E-mail: [email protected] Internet: www.elibrary.imf.org www.imfbookstore.org ©International Monetary Fund. Not for Redistribution Contents Foreword v Acknowledgments vii PART I A FRAMEWORK FOR REBALANCING AND RECOVERY ..................1 1 The Global Crisis and Imbalances .............................................................................3 Hamid Faruqee and Krishna Srinivasan 2 (Why) Should Current Account Balances Be Reduced? ....................................9 Olivier Blanchard and Gian Maria Milesi-Ferretti PART II IMBALANCES IN MAJOR DEFICIT ECONOMIES ...........................19 3 The United States: Resolving “Twin” Deficits ......................................................21 Vladimir Klyuev 4 The United Kingdom: Imbalances and the Financial Sector ........................39 Shaun K. Roache 5 France: Imbalances and Declining Competitiveness ......................................57 Joong Shik Kang 6 India: Dealing with Perennial Fiscal Deficits .......................................................73 Mitali Das PART III IMBALANCES IN MAJOR SURPLUS ECONOMIES .......................91 7 China: Imbalances and High Saving ......................................................................93 Shaun K. Roache 8 Germany: Niche Exports and Improved Competitiveness .........................109 Vladimir Klyuev 9 Japan: Low Growth and an Aging Population ................................................125 Mitali Das Part IV REBALANCING AND GROWTH ..............................................................145 10 A Roadmap for Collective Action .........................................................................147 Krishna Srinivasan, Hamid Faruqee, and Emil Stavrev Index 161 iii ©International Monetary Fund. Not for Redistribution This page intentionally left blank ©International Monetary Fund. Not for Redistribution Foreword In the wake of the financial crisis and global economic downturn, key policy priorities of the major economies have included strengthening the still-sluggish recovery while avoiding a return of the debilitating factors—evidenced previously in record global payments imbalances—that hastened the crisis. At the same time, policymakers agreed that this effort would be enhanced by maintaining and ex- tending the unprecedented multilateral cooperation—spurred by the Group of Twenty (G20)—that helped end the downturn in 2009 and lay the foundation for the current recovery and expansion. At their 2009 Pittsburgh Summit, G20 leaders gave specific form to their in- tentions by creating the Framework for Strong, Sustainable and Balanced Growth to be implemented through a Mutual Assessment Process (MAP) directed by the newly formed Framework Working Group led by the G20. At the 2010 Toronto and Seoul Summits, the G20 endorsed the analytical underpinnings of MAP-led policy cooperation, extending the MAP’s mandate to encompass external sustain- ability. The subsequent summits in Cannes and Los Cabos have endorsed country-specific action plans and the promising new Accountability Framework. The International Monetary Fund (IMF)—working in close partnership with other international organizations—was asked by the G20 to provide a series of both analytical and practical assessments of key issues related to the MAP. This book reflects one of the IMF’s several contributions to the MAP process. Specifi- cally, seven systemic G20 members were identified objectively as having “moder- ate” or “large” imbalances that warranted in-depth analysis. These case studies are included here, and they indicate that global imbalances have been driven primarily by saving imbalances—too low in advanced deficit economies and too high in emerging surplus economies—reflecting underlying forces (such as demograph- ics), structural weaknesses (such as labor market rigidities), and domestic policy distortions or gaps (such as insufficient financial regulation and oversight). The analysis presented here also describes a series of mutually consistent, indi- vidually tailored corrective steps that would improve prospective economic out- comes for all G20 economies while representing an important step toward the global MAP goal of strong, sustainable, and balanced growth. In every case, these beneficial policy steps are in line with each country’s own medium-term reform goals. The IMF’s analysis underscores that if these reforms were implemented in a coherent, multilateral context, their positive results would be made more power- ful. Hopefully, the IMF analysis that forms the basis for this volume will help to build support for these reforms that, taken together, hold out the promise of stronger growth and enhanced global stability. John Lipsky Distinguished Visiting Scholar Johns Hopkins University School of Advanced International Studies v ©International Monetary Fund. Not for Redistribution This page intentionally left blank ©International Monetary Fund. Not for Redistribution Acknowledgments This volume is based on a set of reports produced by staff of the International Monetary Fund’s Research Department for the Group of Twenty (G20) and the Mutual Assessment Process (MAP). The project was conducted under the leader- ship and guidance of Olivier Blanchard, Economic Counsellor and Director of the IMF’s Research Department. The bulk of the work was produced by a team from the Multilateral Surveillance Division, headed by Krishna Srinivasan and Hamid Faruqee. The Modeling Division led by Douglas Laxton and Ben Hunt provided critical input with respect to the scenario analysis, while Josh Felman and Jörg Decressin helped support, guide, and shape the policy analysis and as- sessments as senior reviewers. Strong support from IMF management—especially former First Deputy Managing Director John Lipsky—was instrumental for this year-long effort by IMF staff, which was carried out in collaboration with other international organizations, notably the Organization for Economic Cooperation and Development. As a principal interlocutor with the G20, Reza Moghadam— former Director of the Strategy, Policy, and Review Department—provided strong support. The editors thank the contributing authors—Olivier Blanchard, Mitali Das, Joong Shik Kang, Vladimir Klyuev, Gian Maria Milesi-Ferretti, Shaun Roache, and Emil Stavrev. They would also like to thank Anne Lalramnghakhleli Moses, Eric Bang, David Reischfeld, and Min Song for their excellent technical support in producing this volume. David Einhorn edited the manuscript, and Joanne Johnson of the Communications Department coordinated the production of the publication. The papers have benefited from comments from external participants at the IMF conference on “Analyzing (External) Imbalances” held in Washington on February 2, 2012. Finally, this book has benefited from spirited discussions within the G20 Framework Working Group, co-chaired by Paul Rochon (Can- ada) and Kaushik Basu (India), as part of the MAP, which provided the impetus for this work. vii ©International Monetary Fund. Not for Redistribution This page intentionally left blank ©International Monetary Fund. Not for Redistribution PART I A Framework for Rebalancing and Recovery ©International Monetary Fund. Not for Redistribution This page intentionally left blank ©International Monetary Fund. Not for Redistribution CHAPTER 1 The Global Crisis and Imbalances H AMID FARUQEE AND KRISHNA SRINIVASAN 1 In the wake of the financial crisis, policymakers around the world renewed their focus on key imbalances in major economies with an eye toward reducing vulner- abilities that led to market upheaval and global recession. Two questions have received particular attention. First, were the main global fault lines responsible for the crisis rooted in global imbalances? The answer is not as straightforward as many presume if one carefully distinguishes between symptom and cause. Sec- ond, is global rebalancing essential for securing a durable recovery? A consensus among policymakers has been building that such a multilateral undertaking would benefit the global economy going forward and should be encouraged through policy collaboration. At the Group of Twenty (G20) Summit in Pittsburgh in 2009, leaders com- mitted to achieving strong, sustainable, and balanced growth. Toward this end, a new framework was created that has evolved over time to support
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