The right choices for policymakers in 2015

As 2015 begins, policymakers around the world are faced with
three fundamental choices: to strive for economic growth or
accept stagnation; to work to improve stability or risk
succumbing to fragility; and to cooperate or go it alone. The
stakes could not be higher; 2015 promises to be a make-or-
break year for the global community.
For starters, growth and jobs are needed to support prosperity
and social cohesion in the wake of the Great Recession that
began in 2008. Six years after the eruption of the financial crisis,
the recovery remains weak and uneven. Global growth is
projected at just 3.3% in 2014 and 3.8% in 2015. Some important
economies are still fighting deflation. More than 200 million
people are unemployed. The global economy risks getting stuck
in a “new mediocre” – a prolonged period of slow growth and
feeble job creation.
To break free from stagnation, we need renewed policy
momentum. If the measures agreed by the leaders assembled at
the G-20 in November are implemented, they will lift world GDP
by more than 2% by 2018 – the equivalent of adding $2 trillion in
global income. Furthermore, by 2025, if the laudable – yet not
overly ambitious – goal of closing the gender gap by 25% is
achieved, 100 million women could have jobs that they didn’t
have before. Global leaders have asked the International
Monetary Fund to monitor the implementation of these growth
strategies. We will do so, country by country, reform by reform.
Besides structural reforms, building new momentum will require
pulling all possible levers that can support global demand.
Accommodative monetary policy will remain essential for as long
as growth remains anemic – though we must pay careful
attention to potential spillovers. Fiscal policy should be focused
on promoting growth and creating jobs, while maintaining
medium-term credibility. And labor-market policies should
continue to emphasize training, affordable childcare, and
workplace flexibility.
As we ponder the second choice, between stability and fragility,
we must consider how we can make our increasingly
interconnected world a safer place. Financial integration has
risen tenfold since World War II. National economies are so
interconnected that shifts in market sentiment tend to cascade
globally. It is therefore critical that we complete the agenda on
financial-sector reform.
To be sure, there has been progress, especially on banking
regulation and on addressing too-big-to-fail financial
institutions. But countries must now implement the reforms and
improve the quality of supervision. We also need better rules for
nonbanks, stricter monitoring of shadow banks, and improved
safeguards and more transparency in the derivatives markets.
Progress on closing data gaps in the financial sector is urgently
needed as well, so that regulators can properly assess risks to
financial stability.
Most important, the culture of the financial sector needs to
change. The principal purpose of finance is to provide services
to the other parts of the economy, which it cannot do unless it
enjoys the confidence of those who depend on those services –
that is, all of us. Restoring trust should therefore start with an
all-out effort to promote and enforce ethical behavior throughout
the industry.
The third choice, whether to cooperate or go it alone, is the most
critical. No economy is an island; indeed, the global economy is
more integrated than ever before. Consider this: Fifty years ago,
emerging markets and developing economies accounted for
about a quarter of world GDP. Today, they generate half of
global income, a share that will continue to rise.
But sovereign states are no longer the only actors on the scene.
A global network of new stakeholders has emerged, including
NGOs and citizen activists – often empowered by social media.
This new reality demands a new response. We will need to
update, adapt, and deepen our methods of working together.
This can be done by building on effective institutions of
cooperation that already exist. Institutions like the IMF should be
made even more representative in light of the dynamic shifts
taking place in the global economy. The new networks of
influence should be embraced and given space in the twenty-first
century architecture of global governance. This is what I have
called the “new multilateralism.” I believe it is the only way to
address the challenges that the global community faces.
The year 2014 was a tough one. The recovery was slow, a series
of dangerous geopolitical risks emerged, and the world was
confronted with a devastating Ebola outbreak. This year may be
another tough one, but it could also be a good one – a truly
multilateral year.
New momentum on global trade could help unlock investment
worldwide, and I am hopeful about the new Sustainable
Development Goals (which will succeed the Millennium
Development Goals in 2015), and about the prospects for a
comprehensive climate-change agreement at the end of this
year.
Against this backdrop, the adoption of the IMF reforms by the
United States Congress would send a long-overdue signal to
rapidly growing emerging economies that the world counts on
their voices, and their resources, to find global solutions to global
problems.
Growth, trade, development, and climate change: 2015 will be a
rendezvous of important multilateral initiatives. We cannot afford
to see them fail. Let us make the right choices.