To Build Resilience in Growth, Focus Must Turn to Structural Reforms

Mix of policies has to change with focus on growth and jobs

Need to find a practical way forward on quota reforms

Key to addressing inequality is “redistribution of productivity”

In an interview, Tharman Shanmugaratnam—Deputy Prime Minister of Singapore and Chair of the IMF’s International Monetary and Financial Committee (IMFC)—says that the focus must now turn to structural reforms to “build resilience in growth and jobs”. He also highlights that steps to address income inequality should focus on raising skills and productive potential across the workforce.

IMF Survey: As Chairman of the IMF's policysetting body, can you give us a sense of the key themes from the meetings today?-setting body, can you give us a sense of the key themes from the meetings today?

Tharman: The overarching theme is that we are in a new phase of the recovery. It’s most clear in the U.S., but Europe is past the worst although there's still some downside risk. Globally we are now four to five years out of the crisis. It requires a new balance in policymaking, focused on the medium term, and building resilience in growth and jobs.

The second important theme in our discussions had to do with financial stability. I'm not talking here about the legacy of the last crisis, which is still with us, such as the impaired bank balance sheets in Europe and elsewhere; but about new risks. With the recovery, we also see new risks. Yields are compressed in a whole range of risk assets. Some people think that is a positive because it is cheaper to borrow now, but we have to ask whether it is because risk has gone down or risk is being mispriced. Eventually rates will correct, and we get new instabilities.

Another risk is the rapid growth of corporate leverage, as several of my colleagues pointed out, both in the developing countries as well as in some of the advanced countries—not in Europe as much. Leverage has gone up, much more than investment has. These are new risks that we've got to keep a very close watch on.

And for emerging market economies, there's continuing risk of volatility in capital flows. It's not, in my opinion, a short-term phenomenon, it's not episodic. It's going to be with us for a while.

IMF Survey: We seem to have moved away from talking about recovery to talking about strengthening growth and, in fact, high-quality, durable growth. How can we achieve...