christine lagarde imf SAUL LOEB/AFP/Getty Images

Managing the Global Factor Better

The IMF is the body best suited to serve as a trusted adviser and an effective conductor of the global policy orchestra. If it is to fulfill that role, however, it must strengthen its credibility as a responsive and effective leader. That means listening to its members, then guiding them toward more harmonious policies.

SEATTLE – Imagine a world in which the annual meetings of the International Monetary Fund were more client-driven. Ahead of the gathering – this year’s will take place in Indonesia in October – the IMF would solicit from its 189 member countries three key policy issues on which to focus, not only in official discussions, but also in the numerous seminars that are held in parallel. The result would be an agenda that responded better to the continued anxiety that a growing number of policymakers – and populations – are feeling.

For much of the decade since the global financial crisis erupted, countries worldwide have been subject to what London Business School’s Hélène Rey and others have called “the global factor”: a set of external influences that countries cannot manage or control, but that play an important role in determining key domestic variables. This has generated economic and financial volatility that has complicated internal policy management, fueled political polarization, and exacerbated social divisions.

US President Donald Trump’s “America First” approach has tended to amplify international feelings of uncertainty and insecurity, especially in Asia. Now, beyond having to cope with big changes in capital flows, interest rates, and currency movements, these countries must adjust to the reality that they may not even be able to count on some of their basic, long-standing assumptions about international trade.

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