By Mohamed A. El-Erian
The International Monetary Fund is becoming increasingly bold in the way it assesses the U.S. economy and the U.S. government's economic policies. It's a positive change that I, for one, think could go even further by covering the global implications.
Member countries of the IMF, including the largest, commit to undergo an annual economic review. Known as the "Article IV," it is supposed to provide a country's officials with helpful insights from an informed and trusted outside adviser. It also seeks to assess countries’ adherence with their IMF commitments and, in this context, the impact of their policies on the rest of the world.
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There was a time when U.S. officials did a lot to downplay the IMF’s annual assessment. They would push back on virtually any criticism, even if mild and given in a constructive manner. The IMF, for its part, was hesitant to upset politicians from its largest shareholder, all too aware that lawmakers on Capitol Hill were not well disposed toward the international organization.
No longer, at least judging from the news on this year's assessment and the way it has been communicated. The review points to an evolution in both the U.S. and IMF approach — despite continued difficulties in Congress, which has been refusing to ratify limited IMF reforms that have passed in most countries around the world and involve no additional U.S. financing or loss of voting power.
In a summary of the assessment, the IMF staff aggressively lowers its projection of economic growth in 2014 to an anemic 2 percent, countering what U.S. officials have been saying about the expected strength of the recovery after a weather-disrupted first quarter.
The IMF also reduces its estimate of the country's longer-term potential growth rate to 2 percent, highlights poverty challenges and suggests that the Federal Reserve, in its efforts to support the recovery, will have to keep interest rates lower for longer than markets expect. It even ventures into some politically controversial policy issues, urging the U.S. to raise the minimum wage, invest in infrastructure and overhaul immigration policies.
The IMF’s popular managing director, Christine Lagarde, gave the findings on the U.S. greater visibility by personally presenting them to the media. They will form the basis of a report that will be discussed by the IMF’s board of directors and released subsequently to the public, providing an opportunity for the U.S. and other countries to react publicly and privately.
Whether you agree with them or not — and I mostly do — the IMF’s management and staff should be commended for their openness. For their part, U.S. officials deserve credit for finding the wisdom and courage to allow the timely dissemination of the IMF's view.
That said, no good deed goes unpunished. The IMF's boldness and the astuteness of the U.S. serves to highlight the need for even more. Specifically, it would be really helpful if they spoke to the global consequences of certain U.S. policies with a view to enhancing desirable and durable outcomes.
For example, how should the Fed reflect in its policy approach the extent to which its unprecedented stimulus efforts influence financial instability in other parts of the world?
How could the U.S. and IMF do more to achieve the global policy coordination needed to build a better and more resilient financial system?
The IMF and the U.S. have come a long way. They can use this momentum to make an even bigger difference.
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