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tt20_pisaniferry_g20

tt20_pisaniferry_g20

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Think Tank 20:
New Challenges for the Global Economy, New Uncertainties for the G-20
28
Macroeconomic Coordination: What Has theG-20 Achieved?
G
-20 macroeconomic coordination wentthrough three successive phases. In the rstone, rom Washington to Pittsburgh, the ocuswas on stimulating the global economy across theboard. All countries were requested to contribute,to the extent permitted by the domestic scal situ-ation. In the second one, rom oronto to Cannes,it shifed toward a more complex set o objectives,with the aim o combining continued support orgrowth, budgetary consolidation, and the avoid-ance o a resurgence o global imbalances. In thethird phase, rom Cannes onwards, the ocus wason the European crisis and potential contributionsto its solution rom the rest o the world.In this note, I give a broad-brush assessment o thepriorities and achievements in the three phases,beore oering a ew conclusions on the overallperormance o the G-20.
Phase 1: aving the World, 2008-2009
Te G-20 was created in extraordinary times. Itsinitial ocus was on coordinating a global stimu-lus to ward o depression, equipping the Interna-tional Monetary Fund with sucient resources tocope with potential requests, and beeng up globalliquidity through an exceptional allocation o Spe-cial Drawing Rights (SDRs).Te intellectual case or global action was madeorceully by the IMF
2
and it was—at the time atleast—relatively consensual among economistsand policymakers. I there had ever been a timeor a global Keynesian stimulus, it was 2009.On the scal ront, data conrm that a stimuluswas engineered not only in the advanced G-20group but also, and to a broadly similar extent, inthe emerging group (Figure 1). Russia, India andChina were among the countries where the 2008-2009 eort was the largest.
F
igure
1: F
iscal
i
mpulse
 
in
 
the
g-20,2008-2010
32.521.510.50-0.5-1200820092010
Source: Authors’ calculations with IMF data
 Advanced G20Emerging G20
Note: Fiscal impulse is measured by the change in thecyclically-adjusted primary balance.Data are from the IMF’s Spring 2011 Fiscal Monitor 
Te ull participation o the emerging group to theconcerted stimulus was a remarkable achievement.Emerging countries were traditionally viewed aspassive players in a global macroeconomic coor-dination game dominated by the members o theG-7. Te act that they ully took part in the stimu-lus was indicative o their new global role and wasan ex-post vindication o the very creation o theG-20.o what degree was action undertaken at nationallevels triggered by G-20 coordination? In a situa-tion o a global demand shortall, high risk aver-sion and partial paralysis o nancial markets, thepolicy prescription was very much the same every-where. It is likely, however, that the G-20 action
Jean Pisani-Ferry
1
Director, Bruegel 
 
Think Tank 20:
New Challenges for the Global Economy, New Uncertainties for the G-20
29
plan helped ocus the policymakers’ attention ona well-dened policy package, acilitated domes-tic consensus, and helped overcome ree-rider at-titudes. It made each and every government moresecure than it would have been had they acted inisolation. So the G-20 probably helped overcomeobstacles to the appropriate policy response.With hindsight, whether or not the IMF was rightto call or a uniorm response is a matter or dis-cussion. Whereas Italy assessed its own scal situ-ation as too precarious to participate in the stimu-lus, Spain took part ully but soon realized that ithad overestimated its scal space. Te IMF in thisrespect lacked caution.
3
However it was probably still wise to advocate an across-the-board stimu-lus, rather than a tailored-made one whose prepa-ration would have taken precious time and openedthe door to endless disputes. Tere was more heterogeneity on the monetary ront because situations diered markedly. InEurope and the U.S., central banks had to resortto enhanced credit or liquidity support, but nosuch action was in order in Japan or the emerg-ing world. Even afer the Lehman shock, access todomestic-currency liquidity remained much lessproblematic in the emerging world and in Japanthan in the U.S. and Europe.Te London G-20 Summit also agreed on a $500billion increase in IMF resources and on a specialallocation o SDRs. Te increase in IMF resourc-es was enacted swifly and made possible a largeincrease in lending through standard programs,as well as the granting o credit lines to selectedcountries through two new acilities, the FlexibleCredit Line (FCL) and the Precautionary CreditLine (PCL).Angeloni and Pisani-Ferry (2012) nd that with-out the replenishment o resources at the time o the London G-20 Summit the commitment ca-pacity o the IMF would have been severely con-strained already in 2009. With hindsight, the in-crease in IMF resources seems to have been o theright magnitude, at least taking into account thesize o the subsequent assistance programs. Otherinitiatives were less successul: by end-2011 only three countries, Colombia, Mexico and Poland,had had access to the FCL and only one, the FY-ROM (Macedonia) to the PCL. None had drawnon these acilities. As to the exceptional $250 SDRallocation, subsequent data suggest that eectiveusage o SDR by IMF members was limited andrestricted mainly to small countries. It seems un-likely on this basis that the allocation contributedsignicantly to revive global demand and growth.A particularly important development, but onethat took place outside the remit o the G-20, wasthe provision o U.S. dollar liquidity by the U.S.Federal Reserve. Dollar liquidity was a global con-cern and the Fed played its role as the provider o the international currency through exceptionalswap agreements with selected partner centralbanks across the globe. However this was done in adiscretionary way, with selected partners only andwithout any institutional involvement o the G-20.Summing up, this rst period can be considered ahigh point o international macroeconomic coor-dination and the G-20 played a signicant role inostering coordinated responses to the global cri-sis. For a group o rather heterogeneous countrieswith little tradition o dialogue and joint action,this must be considered a signicant achievement.
Phase 2: Addressing Imbalances, 2010-2011
Whereas warding o depression was conceptu-ally simple, the afermath was more complicatedbecause it involved addressing a conceptually de-batable and politically delicate issue: the so-calledglobal imbalances. Te intellectual background tothe policy agenda was the ear that the recovery would leave preexisting international imbalanc-es largely untouched. Writing at the end o 2009,Blanchard and Milesi-Ferretti (2009) warned that“one o the three central adjustments emphasizedin the earlier multilateral consultations has takenplace, namely the increase in U.S. private savings.wo remain to be implemented, lower scal decitsin the U.S., and lower current account surpluses in
 
Think Tank 20:
New Challenges for the Global Economy, New Uncertainties for the G-20
30
China and a number o other emerging marketcountries. I these do not take place, there is a highrisk that the recovery will be weak and unbalanced.Staying in midstream is dangerous.”Against this background, the goal rom the Pitts-burgh G-20 Declaration was to develop “a orward-looking analysis o whether policies pursued by in-dividual G-20 countries are collectively consistentwith more sustainable and balanced trajectoriesor the global economy” that would eed into theleader’s discussions and help decide on joint action.Tis was the purpose o the Mutual AssessmentProcess (MAP)—the aim o which was to make allparticipating governments more conscious o theinternational spillover eects o their actions and,through peer pressure, to lead them to amend theirpolicy course in the case o global inconsistency.Tis was a dicult endeavor. o start with, therehad never been a consensus among economistson the risks involved in the persistence o globalimbalances. Pre-crisis discussions had highlighteddierences both on the normative ront (are “up-hill” capital ows welare-reducing?) and the posi-tive ront (is there a risk o abrupt unwinding o the imbalances?). Second, previous attempts atglobal discussions on imbalances—through theso-called multilateral consultations on global im-balances initiated in 2006 by the IMF—had ailedto deliver any meaningul result. Tird, the G-20itsel had experienced diculties with the topic, asindicated by the absence o an explicit reerence toit (apart rom an oblique allusion to “unavorablemacroeconomic outcomes”) in the WashingtonSummit Declaration o 2008.Te initial strategy or making coordination work was to ask each country to submit medium-termpolicy rameworks and plans. Te IMF sta wasentrusted with the task o checking the consisten-cy o national assumptions and policy directions,providing eedback to G-20 members and evalu-ating policy alternatives. Tis was intended to bea multistage iterative process involving: (1) initialsubmissions by G-20 governments; (2) aggregationand multilateral consistency check by the IMF; (3)evaluation o alternative policy paths by the IMF;and (4) discussions on policy adjustments amongG-20 members.As conducted or the oronto and Seoul G-20meetings, the MAP was a cumbersome exercisetechnically and it resulted in projections o un-certain accuracy. Discrepancies between the MAPand the World Economic Outlook projections weresupposed to signal biases in the evaluation by G-20countries o the likely global outlook—in its reportor the Cannes Summit, or example, the IMF sta (2011) assessed national projections underlyingthe MAP outlook as “too sanguine”—but they could also indicate orecasting errors by IMF sta.Te coexistence o two sets o projections, both o which emanated rom the und, was also conus-ing or observers and policymakers. Furthermore,the MAP was not an indispensable input to policy simulations: those could equally be carried out onthe basis o WEO projections. Its value was prob-ably more in the bottom-up process leading to thediagnosis. More than in a top-down exercise, thismay have acilitated ownership o the outcome andgenuine discussions on the challenges acing theworld economy.At the Seoul meeting, it was agreed to “enhance”the MAP by outlining “concrete policy commit-ments” or each o the members and by assessing“the nature and root causes o impediments to ad- justmentbehind “persistently large external im-balances”. Clearly, the G-20 had gone beyond theWashington stand-o. Tis agreement openedthe way to a more ambitious attempt at multilat-eral surveillance. A set o indicators and guide-lines intended to help tackle global imbalancesthrough policy adjustment in the key countrieswas adopted in April 2011 at the G-20 ministe-rial in Washington. Tese indicators were in turnused by the IMF sta to identiy seven key coun-tries experiencing imbalances, to provide a broad-brush assessment o their underlying causes, andto make corresponding recommendations.
4
In e-ect, the IMF essentially indicated that imbalanceshad been driven by saving behavior and it recom-mended scal consolidation or some (France,

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