May 2017

By Rafael Molina

Mr. Molina is a partner with Newstate Partners providing specialised debt management services to sovereign governments and central banks, particularly during times of economic distress.


For one weekend every fall and spring, the International Monetary Fund and the World Bank Group come together in Washington, DC to discuss a variety of topics, including the global economy, financial markets, developments among member countries, and the organizations' initiatives and programs being carried out around the world.

Each member country is represented by its minister of finance and central bank governor, whose governance decisions can have significant consequences for global economic developments. Also in attendance are numerous government officials and technocrats as well as representatives of global banks, think tanks, media, nongovernmental organisations, and other interested observers.

While these biannual gatherings serve many purposes, none is as important as serving as an unofficial barometer of global sentiment beyond what economic data releases and media reports on geopolitical developments may be signalling. These meetings provide a unique opportunity to understand first hand distinct global, regional, and local concerns through “water cooler” discussions with the individuals and representatives responsible for implementing economic policies across the globe.

Officially, the IMF confirmed that global growth is indeed picking up, supported by a rise in global business sentiment and increasing commodity prices. However, the improvement in global output remains fragile and subject to significant financial risks and increasing geopolitical challenges. Maurice Obstfeld, Director of Research at the IMF, cautioned that while global growth forecasts have been upgraded, financial challenges are very global in nature due to rising U.S. interest rates, shifting political forces, and new challenges arising from a combination of global terrorism and adverse weather conditions—all of which require multilateral cooperation to find workable solutions.

Unofficially, technocrats and market participants fretted about the growing fragility in the global outlook in sharp contrast to previous years, citing increasing concerns about the implications of unpredictable U.S. policies beyond the Federal Reserve’s move towards monetary normalisation. There are rising concerns about shifting political forces in the U.S. and a retrograde step away from multilateral cooperation and global international trade. Many officials from emerging economies expressed deep anguish about their ability to deal with such risks in isolation. Multilateral leadership will be required to help mitigate the risks from continued international economic integration.

There also seems to be consensus among emerging market officials that sustainable global growth and international stability require multilateral collaboration across a growing range of challenges, beyond just trade and capital flows. These challenges include financial regulation and supervision, securing international payment systems, dealing with climate change, terrorist activity, and refugee and human rights policies, to name just a few.

Many emerging market governments are already formulating policies to foster domestic economic activity and manage fiscal expenditures in the face of lower revenues and rising debt burdens, in addition to distinct local challenges. However, for many of these governments, the lack of global leadership to tackle growing international challenges may lead to altogether new problems that will be difficult to manage in isolation.

At the moment, there are real concerns that the new U.S. administration may not be prepared to provide the necessary leadership to create coalitions to mitigate the multitude of global challenges that lie ahead. A withdrawal from international trade and the consequent slowdown in global output was seen as a relatively small concern in the mind of many emerging market officials in attendance; more palpable was the fear of potential breakdown in multilateral cooperation, leading to greater economic dislocation and global conflict.

These are likely to be the themes of the discussions that will be in the minds of the governors and attendees of the next annual meetings, which will take place in six months’ time in Washington, DC.