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Africa: IMF Promotes Policies to Make Growth Sustainable and Inclusive - Lagarde

 2 June 2014





Photo: IMF Photograph/Stephen Jaffe
IMF Managing Director Christine Lagarde greeted by Mozambique's Finance Minister Manuel Chang at the Maputo International Airport in Maputo.



Interview

The International Monetary Fund and the Mozambican government last week hosted the "Africa Rising" conference, attended by policymakers and private sector and civil society representatives to discuss how to manage and promote the economic gains Africa has been making since the 2008 global economic downturn. In an interview with AllAfrica's Melissa Britz, the fund's Managing Director, Christine Lagarde outlined the key reasons for convening the conference, then discussed the opportunities and risks facing governments and people across sub-Saharan Africa:

We wanted to take stock of the developments of sub-Saharan African countries since we last all congregated in Tanzania five years ago. We are five years into and hopefully past the crisis, and the point was: number one to take stock of what had happened and, number two to lay out together and discuss with our African colleagues and partners what the opportunities were, what the challenges were.

What kind of fiscal policies, legal framework, fiscal and tax frameworks should be considered in order to benefit from the growth that we have seen in Africa? That's really the whole point and I've heard from various participants that they really appreciated and found it interesting in terms of exchange of best practices, recommendations from various experts. So voila.

This is the third economic-focused conference on Africa in almost a month, counting the World Economic Forum on Africa in Abuja and the African Development Bank meeting in Kigali. So there's been a lot of "Africa Rising" discussion. Do you feel that policy makers in Africa and internationally have become too intoxicated with the good news story and have perhaps forgotten what needs to be done to make that good news happen?

I won't comment on the other two conferences because I wasn't there.

I'll focus on what we are trying to do. I think we have a very balanced message which is around the theme of Africa Rising, Africa Watching, because there has clearly been a solid trend of growth over the last few years and, obviously surprisingly, also during the financial crisis when everybody [else] went down.

So Africa like other developing countries emerged as the bit of good news on the horizon. There are also big issues to be addressed and potential risks on the horizon. So our message is mixed and suits the economists because it's on the one hand, on the other hand. It's good news and worries.

We tried to address the issues: How do you manage your natural resources? How do you make sure that the population of the country reaps the benefits of natural resources? And we tried to go a little bit deeper in terms of how do you structure your legal framework, how do you organize the tax landscape in which the investors are going to be prepared to invest, leaving enough on the African table and taking away what any investor wants to have as a return.

When we focus on the creation of jobs, we are also trying to address one of the big issues on the horizon. So I think it's a mixed message. What we take away is good news. It's positive but we see risks on the horizon.

South Africa is on the verge of recession. The bottom is falling out of the Zambian currency, the bottom is falling out of the Ghanaian currency, and Nigeria's got a massive internal security problem. The list is long. Where do you see the good news?

I think you're looking at four countries.

Four quite important countries.

Absolutely. But you have to flash back as well - what was it like 10 years ago? You also had major risks, and very difficult situations.

Probably much more complicated, not much more because there is one that is not only affecting Nigeria but the whole issue of the Sahel region.

But you also had big conflicts, some of which have been resolved in the meantime. So our job as macro-economists is to look at the key numbers, and when you look at the key numbers you see growth, you see inflation, you see current account, and you see deficits. On all those accounts the situation is a lot healthier than it was 10 years ago.

Sorry I forget to mention debt which is a subset of the other numbers.

Debt has been significantly reduced. The average debt in Sub-Saharan Africa is 35 percent. But if you take one or two countries - and that's where we're saying watch out, because there are some countries that have gotten a bit ahead of themselves, that are increasing the level of indebtedness to a level which could be a concern.

Former South African President Thabo Mbeki who heads up the High-Level Panel on Illicit Capital Flows says that Africa wouldn't need development aid if illegal outflows were stemmed. What needs to be done to address this from the side of wealthy countries where the money goes but also by African governments?

Transparency here, transparency there. It's not enough but given the availability of information, to which you contribute by the way, and the facilitated access to information I think that transparency is a very strong weapon to fight against those illicit flows.

I was struck [when] I went to the university [in Maputo] and asked how many in the room do not have internet access. Do not use internet. Zero.

Not all of them had iPhone or iPad or tablets, but all students in the room said "yes, internet access" and use it on a very frequent basis. I would say that transparency is key because it's the tribunal of public opinion that is then available.

The way the IMF communicates these days is vastly different to how it communicated 10 years ago. Are you still finding your way in Africa, finding the tone in which you speak to governments, or is it clear what the parameters of the interactions are?

It is a partnership, whether we are doing bilateral work with the Article Four's [see IMF Surveillance of member countries], whether we are providing technical assistance or training. We have five regional training centres now in Africa and sub-Saharan African countries consume 40 percent of our technical assistance on a global basis.

Whether it's through surveillance, technical assistance or through the programmes, I think it really works as a partnership. There have been instances where we were lacking the appropriate information, where the level of disclosure was not satisfactory. When we find out, we go back to the authorities and we have a dialogue. We don't patronize. We want to partner and partnership again is based on transparency. Where there are obscure contracts we don't get a copy of or there are side letters that we are not aware of, we say "sorry we want the information".

The European Central Bank is considering measures to stimulate the economy, and we have seen what stimulating the economy has done positively and negatively to countries in Africa over the last few years. Is there not a risk that if the ECB does put some stimulus into the economy, it can exacerbate the debt situation for some African countries?

If that was to happen - and we haven't seen that yet, we have heard statements to that effect - but if that was to happen, the intention behind it is not to destabilize or unsettle other economies but to stir the European economy which is clearly a key partner for some of the African countries, and a partner altogether for sub-Saharan African countries.

So that's the positive side of it - if Europe does better, clearly the relationship [with Africa] based on either trade or investment or remittances can be improved. The other side of the coin is that if not well communicated, if not well anticipated, it would bring about a level of volatility which could be detrimental. And my hunch is that given what happened a year ago, in May 2013, the authorities anticipate and have begun to take measures to anticipate that. It is a potential risk but one that I hope can be mitigated by those measures.

A large number of African countries has raised Eurobonds in the last couple of years. Do you think this is a good idea?

What we see as a key priority is energy, I think that's my answer to your point. When you look at the per-capita input of energy, it's amazing to see that it has hardly moved since the 80s. The output of electricity in the whole of sub-Saharan Africa is equal to that of Spain. So there's a crying need for investment in energy and infrastructure projects such as transportation. I would say that improving the productivity of agriculture in a smart and green way would also be a good way forward and I know that some of the panelists[at Africa Rising] did not agree with that.

The Chinese premier recently has promised technology transfers and more investment to Africa. Do you have any comment on his promises and what are the potential areas that China can best assist?

In terms of the sectoral approach, our take is that the energy sector is absolutely key. Then you can roll out the rest of the infrastructure projects that would be needed - transportation channels, whether it's railway, roads, airports or ports. So energy and transportation - this is what I would call the hard infrastructure projects. But you also have soft infrastructure projects that touch on people - training, vocational training and education. If the Chinese authorities at the highest level support the transfer of technology to the effect that it would help in those directions that I have identified, I think it's good. I think it's a sign of more mature investment than just financing and construction.

If that is what is intended - I haven't seen his quotes, I haven't read his speech - but if it's the intention, it's a mature approach to investment.

What do sub-Saharan African countries need to achieve development apart from investment?

Yesterday I tried to be as crystal clear as possible. It was picked up by a Chinese colleague who was on a panel afterwards. It's infrastructure, institutions, people. But at the rock bottom of all these projects you need money. Investment is not in and of itself sufficient but a pre-requisite to build infrastructure projects, and to develop institutions.

I'm not sure if money is necessary for transparency and good governance.

But clearly the lack of growth, and misallocation of the benefits are not conducive to good governance and institutions. And when you talk education, when you talk health, talk investment. Now how you balance the public and the private and how you mix them together - the concessional arrangements - that's really where the technical work has to be done with a view to reaching the right balance. The royalties rates, the length of contracts, those are the technical things that actually matter.

You recently spoke about the three L's of women's empowerment - learning, labour and leadership - and said that women are more inclined to share knowledge and share consensus building. How do you see women contributing to Africa's growth?

Significantly, if I look at the numbers. I mentioned in my speech that if you were to close the gap between men and women in the labour market in Africa, we're talking about U.S. $90 billion on an annual basis - tantamount to the U.S. $93 billion needed on an annual basis to finance projects. So that's a bit from the textbook because clearly then you get into all the technical issues: inheritance, ownership of land, availability of collaterals, access to credit - all the cultural bag of issues that often get in the way of women having access to finance, job market and education.

I'm not sure that it is so much the case in Mozambique because I think that Mozambique has done quite a lot to improve the situation for women but there are other sub-Saharan African countries that have a long way to go. They can benefit enormously from the real emancipation of women and better and equal access to job and finance markets.

Melissa Britz's attendance at Africa Rising was sponsored by the IMF.


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World's Richest People Meet, Muse On How To Spread The Wealth

by ARI SHAPIRO
May 27, 2014 2:38 PM ET

Prince Charles talks to Lynn Forester de Rothschild (left), organizer of the Conference on Inclusive Capitalism, and Christine Lagarde, head of the International Monetary Fund, before Tuesday's conference. The 250 corporate and financial leaders who attended control some $30 trillion, about a third of the world's investable assets.WPA Pool/Getty Images

Talk of economic mobility and the wealth gap is hardly new. From the Occupy movement to President Obama's re-election campaign, income inequality has been in the spotlight for years.

Even so, the "inclusive capitalism" conference in London on Tuesday broke new ground. Not because of the conversation, but because of the people having it.

The 250 people from around the world invited to attend this one-day conference do not represent "the 99 percent," or even the 1 percent. It's more like a tiny fraction of the 1 percent.

"We have $30 trillion of assets under management in the room," says conference organizer Lynn Forester de Rothschild, who runs E.L. Rothschild, a major investment firm she and her husband, of the storied Rothschild banking family, founded in 2003.

That amount — $30 trillion — is roughly one-third of the total investable wealth in the world. If money is power, then this is the most powerful group of people ever to focus on income inequality.

"If this bulk of capital decides that they are going to invest in companies that aren't only thinking about the short-term profit," says Rothschild, "then we will see corporate behavior change."

The titans of commerce and finance didn't necessarily fly to this meeting in London out of a sense of ethics or moral duty, though that may be a motivation for some. For many, says Rothschild, it's a sense of self-preservation. Capitalism appears to be under siege.

"It's true that the business of business is not to solve society's problems," she says. "But it is really dangerous for business when business is viewed as one of society's problems. And that is where we are today."

Prince Charles kicked off the morning's proceedings.

"What is so impressive about today's gathering is that every one of you, ladies and gentlemen, is so well placed to take the kind of action needed to create a new form of inclusive capitalism," he told the conference.

Defining Inclusive Capitalism

That phrase, "inclusive capitalism," is deliberately broad. People talked about it as valuing long-term investment over short-term profits. Some mentioned environmental stewardship; others focused on treating workers well.

Christine Lagarde, who runs the International Monetary Fund, said it is a way to rebuild trust in the financial system.

"So the big question is how can we restore and sustain trust?" she asked in her keynote speech. "First and foremost, by making sure that growth is more inclusive and that the rules of the road favor the many and not just the few."

She said this will be a hard slog, because there will be winners and losers, "and the likely losers are those who have the biggest voice, because they have the largest means."

Later in the day, the group heard speeches from former U.S. President Bill Clinton and Bank of England chief Mark Carney.

Critics suggest this may all be optics. The conference delegates didn't sign on to a specific action plan, or even publicly endorse a set of values.

"I suspect the return on investment in this conference is astonishingly low," says Scott Winship of the Manhattan Institute, a conservative-leaning think tank. "It sort of surprises me that you have a bunch of people in the investment community who view this as having a significant return on investment in some way, whether the return is in people patting them on the back and saying 'Thanks for caring about us,' or in actual changes to policies."

Conference organizer Rothschild says there will be follow-up with all of the delegates, but she made a conscious decision not to ask for any commitments up front.

"Even for me," she says laughing, "I thought that would be a little pushy."

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IMF's Lagarde: Global Economy Sees 'Dark Clouds on the Horizon'

Watch Lagarde: Global Economy Sees 'Dark Clouds on the Horizon' on PBS. See more from PBS NewsHour.

CHRISTINE LAGARDE, managing director, International Monetary Fund: We are seeing a light recovery blowing in a spring wind, but we're also seeing some very dark clouds on the horizon.

Read more


P.S.
What a difference a year makes?  Last year it was "The Arab Spring" for several North African countries and Middle Eastern nations; This year Christine Lagarde, the new HEAD of the IMF, is talking about "a light recovery in a spring wind...also seeing some very dark clouds on the horizon."   
Remember all the jubilation because there would finally be freedom in those Muslim places?  Well, this Spring, the powers that be, are not as enthusiastic.  Remember DSK: Dominique Strauss-Kahn (Tenth Managing Director of IMF), who was swept from his leadership role by a convoluted sex scandal?  Well, the man who became so famous they gave him initials to facilitate his descent from popularity to notoriety;  DSK has ever since been replaced by Christine Legarde, who is now giving the GLOBAL ECONOMY a bleak forecast.  I think back on how optimistic she was when she replaced DSK, after his fall from grace (in disgrace).  Funny how things change in one year?  Funny, but, It's not really funny at all since there are some shenanigans going on in high places.... We see some strange bedfellows....
Speaking of which there is another salacious HETEROSEXUAL SEX SCANDAL in the headlines; This time it is the Secret Service that is in the Cross-Hairs. Ain't that peculiar?

The more things change, the more they stay the same.

Spring  Wind?  Very Dark Clouds?
What else is new?  What else is news?


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IMF Seeks $500B Boost to Lending Resources

By Simon Kennedy - Jan 18, 2012 10:04 AM ET

Christine Lagarde, managing director of the International Monetary Fund (IMF). Photographer: Michele Tantussi/Bloomberg

The International Monetary Fund is proposing to raise its lending capacity by as much as $500 billion to insulate the global economy against any worsening of Europe’s debt crisis.

The Washington-based lender is aiming to increase its resources after identifying a potential need for $1 trillion in financing in coming years, an IMF spokesman said in a statement. The IMF is studying options and will not comment further until it has consulted its members, the fund said. To incorporate a cash buffer, the lender is seeking a total $600 billion.

IMF Managing Director Christine Lagarde said yesterday her staff are looking at ways to expand the fund’s war-chest, which currently has about $385 billion available. While euro-region nations have already pledged to contribute 150 billion euros ($192 billion), the U.S. has said it has no plans to make new bilateral loans and leaders of Group of 20 nations ended last year at odds over the issue.

“The biggest challenge is to respond to the crisis in an adequate manner and many executive directors stressed the necessity and urgency of collective efforts to contain the debt crisis in the euro area and protect economies around the world,” Lagarde said yesterday in an e-mailed statement following a discussion among her institution’s board of directors.

Mexico Meeting

The IMF is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors, according to a G-20 official, who spoke on condition of anonymity because the talks are private. The fund wants a deal struck at the Feb. 25- 26 meeting of G-20 finance ministers and central bankers in Mexico City, the official said.

The push for more money by the IMF may extend this month’s rally in investor sentiment toward European debt markets on speculation the region is enjoying a respite from its two-year debt turmoil and that any euro-area recession may be shallow.

The euro rose 0.8 percent to $1.2833 as of 2:50 p.m. in London.

In a sign the crisis may have longer to run, the World Bank cut its global growth forecast yesterday by the most in three years to 2.5 percent this year and said the euro area may contract 0.3 percent. Euro-area countries also need to repay 157 billion euros of maturing debt this quarter, according to UBS AG calculations.

Talks This Week

Lagarde’s proposal is set to be discussed by G-20 deputy finance officials, scheduled to meet this week in Mexico. At a November summit in the French resort of Cannes, G-20 leaders balked at writing fresh checks for the IMF, demanding that Europe’s governments do more to fix their crisis while saying they would ensure the IMF “continues to have resources to play its systemic role.”

A U.S. official reiterated that stance last month, saying President Barack Obama’s administration won’t stump up more cash for the IMF and that a solution to the turmoil must be led by Europe.

Russia’s government won’t decide on any contribution before March presidential elections, First Deputy Prime Minister Igor Shuvalov said in an interview in Moscow today.

Greater support for the IMF also attracted controversy within Europe. Germany’s Bundesbank coupled its 41.5 billion- euro input to a promise that the aid not be earmarked for Europe. Such recycling would violate euro rules that bar central banks from financing government deficits. As a result, the euro area will lend to the IMF’s general resources, not to a special crisis fund.

Options for raising the IMF’s resources include opening a trust fund or not rolling back a 2009 increase. Officials have also discussed increasing the amount of the fund’s Special Drawing Rights.

Emerging-market countries may try to twin the call for help with a push to increase their clout at the IMF. Such nations, which are growing twice as fast as their developed counterparts, say that their voting power doesn’t reflect their weight in the global economy and they want to end the tradition of selecting a European to head the institution.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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IMF chief urges US policymakers to help economy

Christine Lagarde, of France, managing director of the International Monetary Fund, arrives at the morning session of the Economic Policy Symposium at Jackson Hole in Moran, Wyo., Saturday, Aug. 27, 2011.

AP Photo/Reed Saxon


IMF chief urges US policymakers to help economy

By Paul Wiseman

AP Economics Writer
Published August 27, 2011


JACKSON HOLE, Wyo. — The new head of the International Monetary Fund urged U.S. policymakers to take more aggressive steps to stimulate the economy and ease the housing crisis.

IMF chief Christine Lagarde, speaking at an economic conference in Jackson Hole Saturday, said the United States should reach a "credible" plan to control government debts in the future, but push for stronger economic growth now.

If the economy stagnates, she said, plans to cut government spending in the future will lose credibility. "Who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged unemployment and social dissatisfaction?" she said.

Her comments echoed those of Federal Reserve Chairman Ben Bernanke, who in a speech here Friday urged Congress to do more to help the ailing U.S. economy. Congress, led by House Republicans, has emphasized reducing government budget deficits over short-term measures to create jobs.

Lagarde also pushed U.S. policymakers to halt "the downward spiral of foreclosures, falling house prices and deteriorating household spending." She said they could move more aggressively to reduce amount of principal homeowners owe on their mortgages; about one in four U.S. homeowners owe more on their mortgages than their homes are worth.

The government could help homeowners take advantage of super-low mortgage rates to refinance their homes and reduce their monthly payments, she said.

In July, Lagarde replaced Dominique Strauss-Kahn as managing director of the IMF. He had been accused of assaulting a hotel maid. Those charges were dismissed last week.

Private investors or governments must replenish the capital of banks facing potential losses if ailing European countries such as Greece, Italy and Portugal cannot meet government debt payments, Lagarde said.

Lagarde urged central banks around the world to keep interest rates low and consider "unconventional" steps if they are required to protect the fragile global recovery. On Friday, Fed chief Bernanke did not announce any further steps to jolt the economy. He did say the Fed would discuss its options at its policy meeting next month. One unconventional step the Fed could take would be a third round of bond purchases, a policy known as "quantitative easing," designed to help the economy by lowering long-term interest rates.

"The downside risks to the global economy are increasing," Lagarde said. "Those risks have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed."

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