Thursday, 19 Apr 2018
Business

Protectionism and financial imbalance, main risks

Throughout this week, various representatives of the International Monetary Fund (IMF), the World Bank and finance ministers from around the world will meet in the city of Washington DC to address the main issues that generate uncertainty about global economic growth: protectionist policies, financial imbalance and the geopolitical situation of the world.

As every year, in the framework of the Spring Meetings, various seminars and conferences will be held and studies will be presented that can contribute to the conduct of economic policies that generate a better global equity.

This Tuesday will begin with the presentation of the prospects for global economic growth, better known as the WEO Report, where the IMF is expected to maintain a projection of 3.9% for the end of this year and 2019.

This estimate would represent a recovery in the world economy, since in 2017 they predicted an increase in the global Gross Domestic Product of 3.7 percent. However, the same international organization has warned that it may be harmed by the environment of protectionist policies that are beginning to emerge in different countries.

The managing director of the IMF, Christine Lagarde, in a speech she gave at the University of Hong Kong, incited the governments of advanced and emerging economies to move away from all existing forms of protectionism.

“Protectionist policies not only lead to more expensive products and more limited options, but also prevent trade from playing its essential role in increasing productivity and disseminating new technologies,” he said.

For Lagarde, the commercial opening of recent years has allowed halving the proportion of the world population living in extreme poverty as well as the cost of living and increasing the number of jobs with better wages.

FINANCE SYSTEM Another risk that will be addressed in Washington is the behavior of the financial system before the normalization of monetary policy in the world, mainly in the United States.

Among the issues to be discussed is whether financial regulators are prepared to take measures to protect the system, as they may require banks to have more capital or impose limits on the growth of bank loans as well as restrict their ability to take risks and increase your reserves.

The IMF proposes that, in the face of economic progress, financial institutions and investors become overly optimistic and start giving loans to the most vulnerable companies.

“If interest rates are unusually low, banks and investors may be tempted to lend money in the form of loans or bonds to riskier companies (…) with this accelerated increase in loans, you could have an alert of a possible economic recession or a banking crisis of up to three years in the future, “he said.

The above is related to the high indebtedness in which different countries incurred in the last decade. The IMF has recommended that, as long as there is an economic recovery, it would be good for countries to take advantage to reduce their debt in case there is a strong economic shock in the future that leaves them unprotected.

It will also discuss how to improve the financial inclusion of the most vulnerable groups, through the use of digital technologies, and how to have a good regulation on new payment mechanisms such as virtual assets or cryptocurrencies.

FISCAL MONITOR The issues related to tax evasion will not go unnoticed, because thanks to the journalistic investigations of the Panama Papers and Paradise Papers it was possible to demonstrate once again the lack of a fiscal policy that allows an effective control over the payment of taxes.

Different situations that have helped detect fraudulent situations with the use of digital technology will be announced.

In addition, new digital tools will be presented to enable citizens to comply with their tax obligations from a mobile device.

Different ways of combating corruption in governments with the use of technologies will be considered.

OTHER THEMES It is expected that the main economic leaders will also discuss the geopolitical situation that exists in the world, especially the attacks perpetuated in Syria by the United States, in collaboration with France and the United Kingdom.

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