Wednesday, February 10, 2016

Christine Lagarde - Role of Emerging Markets in a New Global Partnership for Growth

IMF Chief Christine Lagarde gave this speech recently at the University of Maryland. In this speech she calls for global cooperation to help improve global growth. Below are a few quotes from the speech and then a few comments.

"Today I would like to share with you my views on a key 21stcentury issue—the growing importance of emerging market economies. And by growing importance, I mean for the global economy, for advanced countries like the United States, and for you and me personally.
To get started on this topic, let us consider all the possible connections with emerging markets in the first 30 minutes of your day:

• Let’s assume it is 7:00 am, and the alarm goes off on your Chinese-made smartphone. (Ok, let’s say it is 9:00 am—perhaps you have had a long night behind you!)
• On the way to the shower, you send a WhatsApp message to your TA. Whats App, of course, was co-founded by a Ukrainian computer engineer.
• A few minutes later, your roommate has also woken up. With a third of UMD graduate students being international students, there is a good chance that she may be face timing with relatives in India.
• At 9:15 am, you are facing a really tough choice—between strong coffee from Kenya and a milder variety out of Colombia.
• You switch on your Bluetooth speaker—made in Malaysia—to listen to the news.
• Overnight, global stock markets were rattled by the latest Chinese economic data—which has put a dent in your mom’s 401(k) savings plan, and you worry about Spring Break in Mexico.
• Luckily, as you head out to a field trip in a Zip Car made inKorea, you realize that low oil demand and strong supply from emerging markets have also brought down gas prices!"
. . . . .
The role of the IMF

"Which brings me to my final point today: the role of the IMF. I am pleased to tell you that our role has been strengthened by the approval by our membership of a set of Quota and Governance Reforms—which actually came into effect last week. Why is this so important?

First, it places the institution on a more sustainable footing financially—doubling our permanent resources—and it strengthens our ability to respond quickly to our members’ needs.
Second, it also enhances the representation of dynamic emerging and developing economies in the IMF’s governance structure. For the first time in history, emerging market countries like Brazil, China, India, and Russia are now among the 10 largest shareholders of the Fund.

The bottom line is that today’s IMF more accurately reflects the dynamics of the 21st century’s global economy—including the role of emerging markets. It also bolsters the IMF’s ability to bring emerging and advanced economies together in this new partnership for growth."
. . . . .
"My message today is that the role of emerging and developing economies is a defining feature of the 21st century—and of the world in which you and your children will live. By forging a new partnership, by strengthening what I have called a “new multilateralism, we can create a more prosperous and more peaceful future for everybody."
My added comments: This is a very typical speech in that it makes an appeal for more global cooperation among nations and promotes the idea that the IMF should play a key role in the coordination process. While Ms. Lagarde notes her appreciation for approval of the 2010 IMF reforms which "places the institution on a more sustainable footing financially--doubling our permanent resources", she also says earlier in the speech that consideration must be given to increasing the size of the global safety net. 
Readers here need to follow what happens at the IMF over time. While there is no indication in this speech from Ms. Lagarde that the IMF is anticipating any kind of major new crisis any time soon, we do note the call for a larger global safety net. Here is the quote from that part of her speech:
Stronger global financial safety net

"In addition to safer capital flows, a stronger international monetary system must include an adequate global financial safety net—to enable access to financial resources in times of crisis or distress."               . . . . . .
"So how can the safety net be strengthened? For example, one could think about strengthening and broadening global precautionary financing instruments that work for everyone. One could also increase the size of the safety net. Over the next few months, the IMF will be considering with our members these and other issues related to the international monetary system."
These comments are consistent with what we have covered here on the blog in regards to Jim Rickards prediction that we will see another major financial crisis worse than 2008 at some point in the future and that the IMF will take on a leadership role at that time using the SDR (the resources that just got doubled). We noted the roadblocks to the SDR becoming a true global reserve currency and have also noted that some of the roadblocks have been removed (see the January 2016 update at the bottom of the article linked just above).
I note from the tone of these comments that there is not a sense of urgency to increase the size of the global safety net immediately. Ms. Lagarde just says the IMF members will discuss the issue "over the next few months."  Perhaps this explains a recent tweet from Jim Rickards (click here to read it) where he says "the reset story has a long way to run, but the tempo is increasing and the plots getting interesting."  If I combine this tweet with other recent comments by Jim Rickards, it suggests to me that he thinks the major crisis he expects is still awhile yet into the future despite the increasing market volatility we are seeing to start the year 2016. If you want to get more information on the IMF and SDRs in the meantime, just click here.

. Thanks, nice to hear. The reset story has a long way to run, but the tempo is increasing & plot's getting interesting!
Jim's tweet was in reply to a follower letting him know that Willem Middelkoop (author of The Big Reset) had spoken favorably towards Jim in a recent video interview (see tweet below). Mr. Middelkoop also expects to see a more prominent role for the SDR in the future as part of a monetary system reset.

listening to Grant Williams and Willem Middlekoop interview on Money,they give Jim a huge shoutout, best in class.

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