IMF boss warns world is under-prepared for next financial crisis

11 Dec 18

A new financial crisis is brewing but countries are not prepared, the deputy head of the International Monetary Fund has warned.

Speaking in London on 11 December 2018, David Lipton said, 10 years after the global financial crisis, “prevention is incomplete”.

“Over the past two years, the IMF has called on governments to put in place policies aimed at just that goal—as we have put it, ‘fix the roof while the sun shines’,” he said.

“But like many of you, I see storm clouds building, and fear the work on crisis prevention is incomplete.”

Public finances “may be much more constrained than in the past”, he added.

“The right lesson to take from that possibility is for each country to be much more careful to sustain growth, to limit vulnerabilities, and to prepare for whatever may come.”

Lipton warned that no country alone would be able to survive another downturn, and called on governments to work together.

“Not even a few governments working together can handle climate change, cyber-crime, massive refugee flows, failures of governance and corruption,” he said.

“Working together, we will be better able to prevent a damaging downturn in the coming years and a dystopian future in the coming decades.”

IMF managing director Christine Lagarde has been warning of a bleak global economic outlook and the need to prepare for the next recession. She has also highlighted that the trade war between the US and its allies could change the way trade is done and damage economic growth.

Lipton called on China, which is in a trade dispute with the US, to open up its economy to global competition and lower trade barriers.

He added that Chinese trade policies that were “acceptable” when it joined the World Trade Organization in 2001 as a ‘small’ $1 trillion economy could be seen as unfair now it has become an “economic powerhouse”.

Earlier this month, the G20 agreed at their annual meeting in Buenos Aires that there was “room for improvement” in the current global trade system.

Lipton added that the IMF needed to be properly equipped to tackle any forthcoming crisis and urged countries to review the funding they supply to the IMF. 

“One lesson from that crisis was that the IMF went into it under-resourced; we should try to avoid that next time,” he said.

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