Putting "the future" on the global agenda

• Pages: 313-320

Page 313

Are we thinking about tomorrow? We should be, says Peter S. Heller, Deputy Director of the IMF's Fiscal Affairs Department, whose new book,Who Will Pay? Coping with Aging Societies, Climate Change, and Other Long-Term Fiscal Challenges, makes an urgent plea for getting serious about the major changes under way. His study offers in-depth analyses of the challenges facing both developing and industrial countries and provides practical policy advice on what can be done now to reduce potential fiscal burdens.

Heller spoke recently with Sean M. Culhane of the IMF's External Relations Department about the book and what he hopes it will accomplish.

IMF SURVEY: Why did you write this book?

HELLER: I didn't start with the intention of writing a book. I used a sabbatical year to learn more about some of the big global structural trends that are likely to affect the fiscal situations of IMF member countries in coming decades: climate change, globalization, demographic trends, increased interconnectedness, national security threats, and rapid technological change. I also wanted to understand whether these trends are likely to be synchronousPage 318and whether they will principally affect industrial countries or have broader implications. And finally, I wanted to learn whether and how governments take account of long-term issues in thinking about budget policies. The project essentially evolved into a book.

Policymakers should start worrying now

IMF SURVEY: You seem anxious to raise public awareness and rouse policymakers from complacency. What should we be most worried about?

HELLER: Clearly, we should be worrying about the big demographic trends that will affect all countries. Climate change will inevitably have economic and, possibly, political consequences. Globalization will constrain the fiscal situation in many countries.

Rapid technological change, which I believe will contribute, in net terms, to the rising costs of medical care, is likely to have significant fiscal implications.

Regional tensions, particularly over religion and scarce resources (such as water), and terrorism are all troubling. And the possibility of persistent, even growing, income disparities between the poorest countries of the world and middle- and upperincome countries is also a concern.

Policymakers should start worrying now! Why? First, we're already at the point where capital markets are starting to take account of some long-term factors.

In the past year and a half, most major investment banks have appraised the economic implications of demographic change in industrial countries.

Second, these issues are best handled while there is still sufficient time to make adjustments in the fiscal framework and in the behavior of households. Acting now will allow us to foster policies that reduce potential tensions, create incentives to increase appropriate investment, finance research and development to encourage adaptation to relatively certain developments and to narrow uncertainties, and take preventive measures to minimize potential fiscal costs. It will also allow households to begin to adapt their behavior to the financial benefits they can genuinely expect from the government in the future. Third, some of these issues, such as health care, are going to be very difficult to address. There will be troublesome ethical and political dimensions that will take some time to resolve.

Fourth, many fiscal uncertainties remain. Governments typically accept the need to respond to unanticipated shocks even when there is no legal obligation to do so. They need sufficient fiscal leeway, yet we have created enormous fiscal rigidities that will be much harder to tackle if we wait much longer. These issues will have...