IMF chief urges US to act on free trade deals

IMF chief urges US to act on free trade deals
International Monetary Fund chief, Christine Lagarde.

The United States has much to lose if it fails to reach agreement on two landmark free trade deals, International Monetary Fund (IMF) chief Christine Lagarde has warned, while raising concerns that global trade growth continues to underperform.

Speaking at the Atlantic Council on Thursday ahead of the IMF and World Bank spring meetings in Washington next week, she told the audience that this year is set to be the fourth consecutive year in which growth in trade around the world will fall below the long-term average.

"There are potentially huge global gains to be had from further trade reform and integration... Yes, the political economy of these reforms is difficult. Yes, they involve tough choices and trade-offs, and short- run winners and losers. But in the long run, everybody wins," said Ms Lagarde.

The World Trade Organisation said last September that trade was likely to grow just 4 per cent this year, well short of the 20-year average of 5.3 per cent.

Ms Lagarde, turning her attention to the US, warned that the world's largest economy could end up losing out on investments if it continues to dally on the Trans-Pacific Partnership deal with 11 countries in the Asia-Pacific and the Transatlantic Trade and Investment Partnership with the European Union.

"If I'm a big US corporate and I want to invest and I know there is a big market out there in the east... if there is no facilitation of trade, if there are no better tariff arrangements and no alignment of standards around the world, instead of investing in the US, I'm going to look at other investment opportunities and probably invest where there are very serious growing markets," she said.

"To those who say it is going to reduce employment, it's going to be bad for labour, I don't think so. I really don't."

The IMF managing director sees trade as one of the key areas which governments could focus on to try to help the global economy break out of sluggish growth.

While noting that the global economy is in better shape today than during the IMF's last meeting in October last year, thanks to a strong US economic performance and low oil prices, she said the growth figures are not good enough.

"So the global recovery continues, but it is moderate and uneven. In too many parts of the world, it is not strong enough...

"Six months ago, I warned about the risk of a 'new mediocre' - low growth for a long time. Today, we must prevent that new mediocre from becoming the new reality."

And while macroeconomic risks have gone down, financial and geopolitical risks are rising. For instance, Ms Lagarde said, sharp recent swings in foreign exchange rates coupled with an impending rise in US interest rates could be a source of instability.

In a wide-ranging speech that traditionally gives a glimpse into the agenda of the coming meetings, Ms Lagarde repeated her call for the US to ratify the 2010 IMF quota reforms.

She stressed that at a time when some in the US are concerned that the rise of institutions like the Chinese-led Asian Infrastructure Investment Bank is eroding the US' role in the global economic system, it cannot continue to clog up IMF reforms.

The reforms increase the total mandatory contributions to the fund and adjust contributors' share to better reflect the growing importance of emerging economies. But some US lawmakers oppose the increase in America's contribution and worry that the changes would dilute US influence.

Without US ratification, the fund has had to rely on ad hoc loans for its programmes. "We now wait for only one ratification by the US Congress. It is overdue. So if you meet any of them, tell them," said Ms Lagarde.

This article was first published on April 11, 2015.
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