IMF backs ‘growth friendly’ austerity in face of protests

Finance ministers last night responded to mounting criticism that they are pushing austerity policies at the expense of economic recovery with a pledge to pursue “growth friendly fiscal consolidation”.

The IMF’s key policymaking committee promised and to combine medium term fiscal tightening with short term stimulus measures.

“We have to find ways of supporting growth in the short time even in an environment of fiscal consolidation by finding measures that are growth friendly,” said Tharman Shanmugaratnam, chairman of the IMF’s policy-steering International Monetary and Finance Committee (IFMC).

The growth versus austerity issue has loomed over the annual meetings as anti-austerity demonstrations continue to plague southern Europe and threaten to spill over elsewhere.

But on Saturday IMF managing director Christine Lagarde claimed that hostility was based on a “misperception” of the Fund’s views and its role in helping to resolve the crisis. "There has been a lot of attention to the issue of fiscal adjustment and in reality what has been presented as disagreement is more about perception than about reality,” she said. “We all recognize that credible medium-term adjustment is necessary in all advanced economies.

“But the pace and type of measures needs to be calibrated on a country by country basis. It cannot be on a one-size fits all basis. It depends on a country’s pace of growth, market pressures on it and the weight of debt on it.”

The IMF also announced a new Global Policy Agenda. It said that “policies for jobs and growth, debt sustainability, repair of financial systems, and reducing global imbalances are key priorities”.

“Members have agreed to regular peer review to ensure that these targets are being met,” Lagarde said.

In the communiqué issued at the meeting of the 24 countries, the IMFC said that ministers were committed to “strengthening domestic sources of growth in surplus economies, boosting national savings while enhancing export competitiveness in deficit countries, and fostering greater exchange rate flexibility, where appropriate”.

“We all agreed that we are in a better position today than we were six months ago, with regard to the policy footing for getting growth restarted – for achieving fiscal consolidation in advanced economies especially, “ Tharman said. But he admmited that the economic environment was “tough”.

The committee also said it was confidfent that the proposed reforms of the governance, which give a greater voice and voting powers to certain emerging and developing economies, could be agreed by January next year. Tharman said that the IMF’s next quota review due a year later should result in the IMF having financial resources at its disposal “at least” as large as those at present. ”I'm quite hopeful that we will be able to achieve agreement on the next round of quota reforms by next year.”