WASHINGTON, April 10 (Reuters) - The International Monetary Fund on Thursday urged world leaders to pick up the pace on fiscal and financial policies to push forward on the “marathon” to growth - or risk a prolonged global slump.
In a 14-page “Global Policy Agenda” for the world’s economic policymakers, the IMF outlined a long list of tasks that remain incomplete, from reining in shadow banking risks in China to speeding up financial reforms.
The Washington-based Fund also said it was “utterly disappointed” the United States again failed to pass historic reforms to the IMF meant to give more power to emerging markets.
“The key challenge remains transforming a modest and fragile recovery into more rapid, balanced, and sustainable growth,” the IMF said ahead of its twice-yearly meetings with the World Bank that kick off on Friday. “This is a marathon, not a sprint.”
Taking stock since the last meetings in October, the IMF saw similar risks on the table, including the chance for huge market and exchange rate volatility if the U.S. Federal Reserve botches its exit from a massive monetary stimulus program, withdrawing too quickly or not communicating well enough.
“Such a scenario could be especially disruptive if financial stability risks from very accommodative monetary policies, including excessive risk-taking and leverage, are left unchecked by supervisory authorities,” the IMF said, echoing risks highlighted in its global financial stability report earlier this week.
The Fund said more coordination between central bank and financial regulators could limit exchange price swings, and said central bankers should have wider discussions of their plans. And the IMF said some major emerging market countries were calling for even more cooperation on monetary policy, as they blamed Fed policies for destabilizing capital flows.
The IMF cautioned advanced economies to avoid withdrawing easy money too quickly, as the recovery is still fragile, inflation low, and countries are still struggling to crawl out from piles of debt in the wake of the global financial crisis.
It also warned emerging markets, which still contribute the bulk of global growth, could slow even more.
“Geopolitical tensions that have recently come to the fore could also cloud the growth outlook,” the IMF repeated, referring to the conflict between Russia and some Western countries over Moscow’s annexation of Ukraine’s Crimea region.
The Fund focused especially on a potential “hard landing” in China, the world’s second-largest economy, which could have negative repercussions on other emerging markets.
Overall, the IMF urged countries to do more to boost growth, including through structural reforms if countries have no space to further boost spending or cut interest rates. Growth is also a top priority for the Group of 20 leading advanced and emerging market economies, whose finance ministers meet on Friday.
“The costs of continued sluggish growth are clear - there will only be modest income gains and gradual reductions in unemployment,” the IMF said.
But the Fund saved its sharpest words for the lack of progress in passing 2010 reforms to its voting shares, or quotas, which double the Fund’s resources and give greater voice to emerging markets like China. The reforms have been held up by the U.S. Congress, but a bid to get it to approve the changes last month was dropped amid concerns it could hold up a bill providing aid to Ukraine.
“The delay in making effective the 2010 reform package is utterly disappointing,” the IMF said. “These reforms are essential to ensure the continued legitimacy, relevance, financial strength and effectiveness of the Fund.” (Reporting by Anna Yukhananov; Editing by Andrea Ricci)