Andreas Dombret: Issues at the IMF-World Bank Annual Meeting 2013
Statement by Dr Andreas Dombret, Member of the Executive Board of the Deutsche
Bundesbank, at the Atlantic-Brücke, Washington DC, 9 October 2013.
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1. Introduction
Ladies and gentlemen
I would like to thank the Hodges family for opening their house to us and for inviting me
today. Washington is busy with the annual meetings of the IMF and the World Bank. But
there is even more going on. The G20 are also meeting, as are the Financial Stability Board,
the Governors of the Bank for International Settlements and the Institute of International
Finance.
For a couple of days Washington has become the Mecca of the financial world. Thus, it is
good that this delegation from the Atlantik-Brücke has also come to Washington to be part of
it all and to gather information.
I would like to give you a very brief overview of what economic issues will be under
discussion. Three topics will be at the center of interest: first, the global economic outlook;
second, current and future challenges for economic policy; and third, institutional matters,
such as the global reform of financial regulation. Let us take a closer look at these three
topics.
2. The global economy
The global economy has improved, but growth is still moderate. In its latest World Economic
Outlook, the IMF projects global growth to reach 2.9% in 2013 and 3.6% in 2014. In doing
that, the IMF revised earlier estimates downwards.
The underlying geographical pattern of this outlook is a bit scattered. Growth in advanced
economies is recovering, while estimates for emerging economies have been revised
downwards. In the euro area, growth has picked up, but will remain weak. On the positive
side, reforms in the crisis countries are progressing and initial results are becoming visible.
The German economy has overcome its cyclical weakness and has returned to normal
capacity utilization.
3. Challenges for economic policy
What are the challenges for economic policy? Looking to the future, there are three major
challenges we have to face.
The first of these is the normalization of monetary policy in advanced economies. With
improved economic conditions, it becomes more probable that interest rates will rise again.
Nevertheless, exiting from such a prolonged period of low interest rates will be difficult. It
might cause volatility on financial markets and limiting this volatility will be decisive.
Emerging markets, in particular, will have to prepare themselves for potential outflows of
capital. Some of them will have to undertake structural reforms and consolidate their public
finances.
This brings us to the second challenge: developments in public finances. This topic is
relevant for the US - just think of the government shutdown and the risk of eventually
reaching the debt ceiling -, it is relevant for Japan and it is certainly relevant for the euro
area. Ultimately, high government debt impedes economic growth and endangers financial
stability.
The third challenge is the dampened outlook for emerging market economies. This will shift
the global pattern of growth toward advanced economies and will require emerging markets
to adjust.
4. Regulatory reform
Now, we have talked about the global economic outlook and we have talked about
challenges for economic policy. This leaves us with the third topic that will be relevant for this
year's annual meeting: institutional reform.
Let us take a closer look at the reform of financial regulation. Here, we have already made
good progress. We have, for instance, agreed upon new capital requirements for banks.
These will make banks more resilient against shocks, thereby enhancing financial stability.
But we have not reached the end of the reform process. Two topics are currently of interest.
The first is the issue of shadow banking. Shadow banking refers to financial institutions that
operate outside the perimeter of traditional banking regulation. We might also use the term
"non-bank banks". Money market funds or hedge funds are typical examples. As these
entities might be a source of systemic risk we have to deal with them in terms of regulation.
This issue has already been discussed at the G20 summit in St. Petersburg in August.
Progress has been made and shadow banking will remain high on the reform agenda.
The same is true of the "too big to fail" problem. This refers to banks which are so big that
their failure could bring down the entire financial system. Just think about what happened
when Lehman Brothers failed in September 2008. What we need are restructuring
mechanisms that will allow such banks to fail without disrupting the whole system. At the
conceptual level, we have already made good progress. Now, we have to implement the new
measures.
5. Conclusion
Ladies and gentlemen, many issues will be discussed at this year's annual meeting of the
IMF and the World Bank. I have highlighted a few of them but left out others.
In the context of the IMF, there will certainly be debates on quotas and governance. At the
same time, there will probably be discussion about issues such as public debt management
or finance for growth. It will be interesting to see what comes out of all these discussions and
to what extent it will shape the future of the global economy.
Thank you.