After a renewed period of stress in
the global economy, the outlook has improved and some progress is being made to
reduce global imbalances. But the recovery remains fragile, with continued
risks from the euro area and higher oil prices. The United States economy
continues to gather strength despite adverse shocks from the crisis in Europe,
last year’s supply chain disruptions, increases in oil and gasoline prices, and
slower growth in some emerging markets.
U.S. growth has averaged about 2
1/2 percent since the recovery began, and the economy has added private sector
jobs for 25 straight months, totaling 4.1 million jobs over the period. The
balance sheet of the business sector is stronger, and the economy as a whole is
more productive than before the crisis. We have made significant progress in
reducing the excesses and imbalances that helped cause the crisis. Household
debt to income has come down significantly from pre-crisis levels, and U.S.
financial sector debt has dropped by more than $3 trillion since the crisis
began. Reflecting early action on repair and reform, U.S. banks are strongly
capitalized relative to their peers, improving confidence in our financial
sector and allowing for an expansion in credit to the private sector.
The positive tone of recent data
suggests the economy is gradually healing and getting stronger, but the
financial crisis put our economy in a deep hole and it will take time to fully
repair the damage and to restore the economic security of the middle class.
Unemployment remains high, the housing market continues to be weak, and growth
is not as fast as we would like. President Obama has laid out a blueprint for the
economy that proposes action to support growth in the short-term so that we do
not jeopardize the gains our economy has made over the last three years. We
will continue to improve on and expand our existing programs to find new ways
to strengthen the market and help homeowners.
Alongside measures to support
growth, the President has also outlined a balanced approach to address our
formidable long-term fiscal problem. Including the legislation signed into law
last year, this would reduce the deficit by more than $4 trillion over the next
decade. The President’s deficit reduction plan will put the nation’s finances
on a sustainable course, cutting the deficit in half and moving the national
debt to a consistently declining path.
In Europe, leaders have taken
important action in recent weeks and months to strengthen their crisis
response, reduce financial stress, and lay the foundations for greater
stability. The success of the next phase of the crisis response will hinge on
Europe’s willingness and ability, together with the European Central Bank
(ECB), to apply its tools and processes creatively, flexibly and aggressively
to support countries as they implement reforms and stay ahead of markets.
The IMF can and should play a
complementary role in a comprehensive and well-designed European
response. We welcome the pledges by several International Monetary Fund
(IMF) members to provide bilateral loans to the Fund. The IMF has substantial
capacity to play its systemic role in the global economy and thus help address,
if necessary, the effects of the European crisis on the rest of the world. We
also welcome the commitment by the G-20 and the International Monetary and
Financial Committee (IMFC) to incorporate additional safeguards to protect IMF
resources. The United States continues to support the smooth functioning of
international financial markets, including through the central bank swap lines
with the ECB.
Oil prices also present a risk to
global growth. Higher prices strain household budgets and weigh against
private sector demand growth. The United States has and will continue to
work with our international partners to promote an adequate global supply of
petroleum. These efforts are beginning to show some positive effects—over
the past few weeks crude oil prices have fallen and global oil inventories are
rising. It is important that we remain vigilant to the risks of supply
disruptions and their effect on economic growth.
A better balanced global economy is
important to achieving sustainable growth and financial stability. Current
account surpluses and deficits are down from pre-crisis levels, but further
action is needed to guard against unsustainable imbalances re-emerging. As
current account deficit countries have worked to raise domestic savings, the
global economy and job creation are being hindered by insufficient aggregate
demand growth. We therefore need to see stronger acceleration of growth in
domestic demand in current account surplus economies, as well as greater
exchange rate flexibility in countries such as China. China's recent decision
to widen the daily trading band for its exchange rate, if implemented in a way
that allows the value of the exchange rate to reflect market forces, could
contribute to this rebalancing. While we welcome the progress to date, the
process of correcting the misalignment of China's exchange rate remains
incomplete and further appreciation is necessary, and in China’s interest.
Since the first demonstrations in
Tunisia in December 2010, the Arab Spring has sparked a transformative change
in the Middle East and North Africa. More than a year later, the region
finds itself in the midst of enormous and positive democratic change. At
the same time, the region faces distinct economic challenges that could
undermine these gains. Strong oil prices, weakening tourism and capital
flows associated with uncertainty, and the weak demand in Europe have greatly
affected the region. Steps must be taken to restore stability, boost job
creation, and increase public participation. The Deauville Partnership
with Arab Countries in Transition provides a unique platform to help support
Arab Spring countries in these efforts.
There is a clear global focus on
bringing pressure to bear on Iran to halt its illicit activity. On the
financial front, financial institutions around the world have cut off
designated Iranian banks, making it harder for Iran to facilitate its nuclear
activities or evade sanctions. On the energy front, some of the world’s
largest economies have taken steps to significantly reduce their volume of
Iranian oil imports. Continued cooperation to ensure adequate supply will
signal to global energy markets that there will be sufficient production available
to meet demand.
Surveillance remains the core
mission of the IMF. We welcome the steps the Fund has already undertaken to
improve its analysis of domestic policies and global risks. Exchange
rates continue to be integral to the stability of the international monetary
system and are at the core of the Fund’s surveillance mandate. We look
forward to the publication of a rigorous External Sector Report and External
Balance Assessment, including clear assessments on exchange rates and reserve
accumulation and identifying the sources of global imbalances.
Exchange rate flexibility is also
an essential tool in managing capital flows. The IMF’s approach to capital
flows must therefore emphasize the importance of exchange rates and
macroeconomic policies as the first line of defense in responding to surges in
Full implementation of the reform
of the Executive Board is critical to improving the legitimacy and
effectiveness of the Fund. I urge my European colleagues to move forward
on Europe’s Board reform commitments in time for the 2012 Board election.
The review of the quota formula
provides an opportunity to make fundamental revisions so that quotas actually
reflect countries’ relative economic weights in the global economy, as measured
Supporting economic stability in
low-income countries (LICs) is also a critical mission of the Fund. Therefore,
we believe that the windfall profits from recent gold sales should be used
solely to support LICs, and we urge the IMF Board to examine ways to increase
the concessionality of Poverty Reduction and Growth Trust lending.