The IMF has wrapped up its meeting in Tokyo and issued its closing statement, couched in the usual cautious jargon. But it contains a good summary of where the world economy is at. Here is our translation of a few key sections.
Advanced economies: There is a need to secure a sustained recovery from the crisis. Further monetary easing has created more accommodative financial conditions. The implementation of credible medium-term fiscal consolidation plans remains critical in many advanced economies. Fiscal policy should be appropriately calibrated to be as growth-friendly as possible. In the euro area, significant progress has been made. The ECB’s decision on Outright Monetary Transactions and the launch of the European Stability Mechanism are welcome. But further steps are necessary. We look forward to timely implementation of an effective banking and a stronger fiscal union to strengthen the monetary union’s resilience, and structural reforms to boost growth and employment at the national level. In the United States, resolving the fiscal cliff, raising the debt ceiling, and making progress toward a comprehensive plan to ensure fiscal sustainability are essential. In Japan, securing funding for this year’s budget and further progress in medium-term fiscal consolidation are needed.
Translation: The rich countries: Still in a hole. Their central banks have been pumping cash like it was crude oil to make up for the fact that nobody else with any money dares let go of it. But lot of countries still don’t have a clue how they’re going to avoid leaving whopping piles of debt to their grandchildren. Meanwhile, in their panic they’ve cut back so hard they’re strangling the people who are trying to earn a crust now. The Europeans have finally woken up and realized that their so-called European Union was frankly too much European and not enough Union, and now they’re so busy arguing about whether to finish the job or trash the whole idea that it could end up getting trashed for them. The Americans are playing Russian roulette with five bullets in the chamber and are in total denial about it. And the Japanese… well, they’re where the Americans are about to be.
Emerging market and developing countries: Activity is slowing in emerging market and developing economies, reflecting weaker external and domestic demand and, in some cases, policy tightening to address inflationary pressures. Risks are compounded for some countries by falling prices for non-food commodities and upward price pressures on some food items. These economies will need to ensure flexibility in policy implementation to support growth, consistent with global rebalancing. The potential impact from large and volatile cross- border capital flows should be closely monitored. The Fund has increased its support for Arab countries in transition and continues to work with these authorities as they develop home- grown national reform strategies to deliver inclusive growth and jobs. We call on the international community to provide broader support for this region. We welcome the increased engagement of the IMF with small states and look forward to further work in this area.
The not-so-rich-but-getting-richer-fast countries: Someone should have told these guys that the party never lasts forever. They sold everyone what Joe Biden would call “a bunch of stuff“, and now they’ve figured out that getting drunk on the proceeds ends up giving you a hangover. And needless to say they didn’t stop to think what happens when the price of what you’re selling collapses at the same time as the price of what you’re buying goes up. Or when you’re selling circles and suddenly the whole world wants squares. Or when all the people who thought your country was a great place to park their cash take it all out again and leave you holding the bag. Or when your population suddenly decides it’s had enough of hearing the same crappy lies for 40 years. Think the world is going to save you? Good luck.
Low-income countries: While growth remains buoyant in most low- income countries, fiscal and reserve positions have weakened and buffers need to be restored. In the near term, the Fund is adequately resourced to provide additional financial support to low-income countries, should the need arise. We welcome the IMF Executive Board’s decision on the use of US$2.7 billion in remaining windfall gold sales profits as part of a strategy to ensure the long-term sustainability of the Fund’s concessional financing facilities. This comes on top of the receipt of the assurances needed for the use of US$1.1 billion in resources linked to gold sales profits to bolster PRGT resources in the near term. We call on members to expedite the unlocking of this financing.
The countries at the bottom of the heap: That’s it, you’ve had your fun. We let you feel for a moment like you were getting richer. But then you spent the little extra you’d managed to scrape together on fancy cars and marble bathtubs. Funny how quickly it runs out, ain’t it? We’ll give you some more to keep you from starving, because frankly it’s peanuts compared to the gazillions we’ve burned through trying (and failing) to clean up the messes of a handful of guys in very expensive suits. But after that, it’s sayonara, suckers.