G-20 Moves Forward to Tackle Global Imbalances

G-20 agrees guidelines to measure possibly destabilizing global imbalances

Aim to reduce risks of crisis in global economy

Enhanced IMF role in assessing countries’ performance against guidelines

The agreement—reached in Washington DC during the IMF-World Bank Spring Meetings—provides a concrete basis for G-20 countries to assess each others’ economic policies, with a view to address large imbalances and support the G-20’s growth objectives. The process will draw on independent analysis by the International Monetary Fund (IMF).

“One of the major objectives of today’s meeting was to make sure we could agree on continuing the process and agree on the indicative guidelines, and we did,” said Christine Lagarde, G-20 Chair and French Finance Minister told reporters on April 15.

The guidelines are part of a broader work agenda prompted by the enormous human and financial costs of the global economic crisis, which triggered a worldwide recession. The G-20’s Framework for Strong, Sustainable, and Balanced Growth aims to ensure a lasting recovery and strong and sustainable growth over the medium term.

“Agreeing on the indicative guidelines was a major step in the direction of establishing the right policies,” added Lagarde. She also acknowledged the “excellent work by the IMF, regional development banks and other international financial institutions.”

Objective assessment

Yesterday’s agreement builds on the much debated set of indicators intended to measure imbalances in the global economy that were agreed in February at the G-20 ministerial meeting in Paris. Those indicators comprise:

• public debt and fiscal deficits;

• private saving rate and private debt; and

• the external balance reflecting the trade balance and net investment income flows and transfers, “taking due consideration of exchange rate, fiscal, monetary and other policies.”

The G-20 has now established indicative guidelines, or a process, by which it will assess country performance against each of these indicators, in the context of their Mutual Assessment Process (MAP) and with the assistance of the IMF.

“Each of the three indicators that we had agreed in Paris is going to be reviewed for each country in the light of an economic model and three statistical models,” explained Lagarde. According to the G-20’s new guidelines, each country’s performance will be compared against four reference points for each indicator based on a combination of structural and statistical...