Macroeconomic Cooperation: To Correct Global Imbalances
The main challenge of macroeconomic policy coordination is managing global imbalances.
Other structural phenomena are surpluses in Asia, which are associated, to their high savings rate. One of its major sources, the undervaluation of the Chinese renminbi.
The asymmetric adjustments of deficit and surplus economies that characterize the global monetary system have been clearly at work and represent the most important phenomenon after the outbreak of the North Atlantic financial crisis, notably within the eurozone.
In due time, particularly with the downward correction in commodity prices, several economies started to experience capital outflows, exchange rate depreciation, and, in some cases, recession. This is, in short, a reflection of the pro-cyclical boom–bust cycles that emerging and developing countries experience under the current globalfinancial order.
To manage these complex issues, the world has at best a limited set of mechanisms of macroeconomic policy dialogue and cooperation. The IMF is the major instrument of a multilateral character.
During the peak of the North Atlantic financial crisis, when the G20 decided in Pittsburgh in September 2009 to designate itself as ‘the premier forum for our international economic cooperation. Coordination among central banks of major developed countries, which has been critical since the outbreak of the subprime crisis in the United States in 2007.
G20 cooperation was very successful in the initial phase of the crisis, when it assumed the form of a ‘Keynesian consensus’, avoiding in particular a new Great Depression. However, in relation to fiscal policies, the consensus broke down in the June 2010 G20 Toronto meeting, when it became clear that there was a deep division between countries that continued to defend expansionary policies to counteract the weakness of aggregate demand and those that placed the priority on public sector debt sustainability.
The need for continued monetary stimulus in the advanced economies has generated a major disequilibrium vis-à-vis emerging economies, as reflected in a new financial boom, which in turn generated the strong exchange rate pressures faced by these economies—a ‘currency war'. This led to an agreement by the G20 that ‘the persistently large imbalances that require policy action’ are: public sector deficits and debts, private savings and private debt, and external current account imbalances.
In practice, the main technical support is provided by the IMF. This includes Reports for the ‘systemic five’ (United States, United Kingdom, eurozone, Japan, and China) and the External Sector Reports assessing global imbalances on emerging countries.
IMF Fund had lacked strong assessments (assets) of major developed countries in the run-up to the North Atlantic financial crisis. In 2010 it was also decided that twenty-five jurisdictions with systemically important financial sectors must be subject to Financial Sector Assessment Programs (FSAPs).
It is quite clear that the world had never developed an elaborate system of surveillance and macroeconomic policy.
The system that has been put in place continues to rely essentially on a mix of stronger surveillance and peer pressure. However, such forces are weak, as reflected in the spillovers generated by the expansionary monetary policies of developed countries on emerging markets. So, at a future stage, it may be essential to move to specific targets for some macroeconomic indicators, particularly the current account and foreign exchange reserves levels.