David Lipton, the acting IMF chief, has backed new monetary stimulus by the world’s top central banks to sustain the flagging global economy — in a thinly veiled nod to the US Federal Reserve and the European Central Bank as they consider easing policy.
In an interview with the Financial Times as G7 finance ministers and central bankers prepare to meet this week in France, Mr Lipton said that “in light of sluggish growth and downside risks, it makes sense for monetary policy in the major central banks to remain accommodative”.
Mr Lipton said he did not want to comment on specific decisions in individual countries, but added that central banks should not shy away from loosening policy — if it was justified — because of fears of losing ammunition to combat a future downturn.
“Our view is that if the economy needs support, you provide support — but not inappropriate policies that contribute to the slowdown, just in order to be in a position to fight the very slowdown that has been created,” he said.
Mario Draghi, ECB president, recently signalled the eurozone may move to strengthen its commitment to low interest rates or even resume bond purchases to tackle weak inflation, while Jay Powell, the Fed chairman, has indicated the US central bank might cut rates as early as this month because of “uncertainties” in the outlook.
The IMF in April downgraded its forecast for global growth this year to 3.3 per cent, but predicted a rebound to 3.6 per cent in 2020.
“We see some acceleration next year but that presupposes a few very important things, including that trade tensions continue to be resolved rather than intensify, and that a number of countries that had extreme stress recover somewhat,” Mr Lipton said, referring to Argentina, Venezuela, Turkey and Iran.
Mr Lipton, a former Clinton and Obama administration official who has been the first deputy managing director of the IMF since 2011, took the helm this month after Christine Lagarde was nominated to lead the ECB at the end of Mr Draghi’s term later this year.
“I view myself as being a steward during the transition, making sure we are successful with what we are doing, finishing tasks that need to be done and advancing the agendas that need to be advanced,” he said.
Just last week, the IMF approved the release of a $5.4bn tranche of funds to Argentina, part of the largest bailout the institution has ever authorised. Mr Lipton was upbeat about the loan’s prospects, despite fears that incumbent president Mauricio Macri could lose elections later this year to a populist challenger that could jeopardise economic reforms tied to the IMF programme.
“Argentina has had some ups and downs — we understand that political uncertainty may affect sentiment, but the good news is Argentina has put in place the policies that they designed in the programme. They carried them out, and it’s bearing fruit,” Mr Lipton said.
The acting IMF chief said he was encouraged that the US and China had resumed their “dialogue” over trade, since commercial tensions between Washington and Beijing have been one of the main clouds over the outlook.
Given that there was bound to be less fiscal and monetary space available for authorities to use to tackle the next downturn compared with the during global financial crisis, Mr Lipton said it was important not to precipitate one. “It’s more important than it’s been in a long time to avoid a recession, to be careful about any actions that might trigger a downturn”, he warned.
Offering a glowing assessment of Ms Lagarde’s tenure at the fund, Mr Lipton said her main accomplishment was that “the world has come to see the IMF with respect” since her arrival eight years ago. At the time the fund was in crisis following the abrupt exit of her disgraced predecessor Dominique Strauss-Kahn. She had also emerged as the “world’s top economic diplomat” with close relations with many global leaders.
“I am often along for the ride, at her side in international meetings — she has their ear”, he said.
Looking ahead to her tenure at the ECB, Mr Lipton said those skills would serve the eurozone well, particularly if it was faced with a new crisis: “In the event of a downturn, a broad range of policy reactions would be needed — monetary, fiscal and structural — and in Europe, some form of action across many countries that would be mutually reinforcing. I would bet that Christine Lagarde at the helm if the ECB would be a voice for a broad reaction.”
Mr Lipton declined to comment on Ms Lagarde’s possible replacement at the IMF, as an informal succession race kicks off in European capitals. The IMF chief has traditionally been European while the head of the World Bank has traditionally been an American — an arrangement unlikely to be shaken.
One of Mr Lipton’s most pressing tasks in the coming months will be to try to wrap up talks to secure more funding for the IMF by its annual meetings in October.
While the Trump administration has been sceptical of increasing the IMF’s permanent reserves, which would require an adjustment in the voting shares of each country on the board, it has signalled an openness to replacing special borrowing arrangements that are due to expire in the coming years, offering a path to a deal.
“I’m quite confident that we will achieve the fundamental goal of preserving an adequate resource base — I believe we will get to the finish line on this,” Mr Lipton said.