Mike Callaghan is Director of the Lowy Institute's G20 Studies Centre. His op-ed on Australia's agenda for the 2014 G20 meeting appears in today's Financial Review.
Things are changing in the IMF. And it's positive change. For example, the IMF has admitted that it was wrong in underestimating the impact of fiscal tightening on European countries.
It has also shown that it can change its mind.
The IMF has reversed its long-standing opposition to capital controls and now concedes that in some situations capital controls can be beneficial. The latest important development in the IMF's thinking is that its 'surveillance operations' (a terrible term to cover the economic review and policy advice it provides to countries) will now include job creation and inclusive growth.
The IMF released a report last month with a less than auspicious title: Jobs and Growth: Analytical and Operational Considerations for the Fund. But the report starts with a telling observation: 'job creation and growth with inclusion are imperatives that resonate in every country'. Creating jobs and growth are pressing issues confronting all world leaders. That's why the G20 Studies Centre has argued that growth and jobs creation should be the central objective of the G20 and that all the activities of the G20 should be prioritised and explained in terms of their contribution to these goals.
As the IMF noted in its report, global economic growth remains well below levels experienced before the financial crisis and employment is at its lowest level in two decades, with young people and the long-term unemployed particularly hard hit. There are over 200 million unemployed people in the world, and inequity within most countries is growing.[fold]
The IMF says that it will help countries better understand the effectiveness of policies to support growth, employment and inclusion. This shift in Fund policy may be a recognition of the human cost and social upheaval that can result from tepid growth and high unemployment. Dani Rodrik says it is a case of the Fund saying 'gee, we sort of forgot about this until now, didn't we?' (although, as Rodrik acknowledges, better late than never.)
Focusing on jobs and growth in its policy advice to governments increases the prospect that countries will listen to the IMF's advice. To use the language of the IMF, it would help the 'traction' of policy advice. If it is going to have influence, the IMF has to relate to the concerns of the people, and in turn the policymakers, in each country.
For example, the Fund may lament that insufficient progress is being made in reducing global imbalances (current account imbalances). But is difficult for a policymaker to win domestic political battles needed to get reforms accepted by saying that they will 'help reduce global current account imbalances'. The policymaker will approach issues from a domestic viewpoint, in particular the impact on economic growth and unemployment.
If the IMF's advice will focus more on strategies to create growth and jobs, the more likely it will receive a receptive audience. The nature of the policy advice may not be significantly different, for as noted by the Fund, macroeconomic stability is an essential foundation for any growth- and job-creating strategy. But hopefully its advice will be more comprehensive, picking up structural issues such as the need to improve labour force participation (particularly by women in some countries) and rising inequity. This is also the challenge confronting the G20.
Photo by Flickr user Thewmatt.