Economists Call for Urgent Reforms

Martin Luther Oketch

26 April 2011

Leading global economists are calling for urgent reforms in the current macroeconomic policies to address the current global economic imbalances which could lead to another round of global economic crisis in the near future.

The international economists do anticipate that when reforms in economic policies takes place, it would go a long way in reducing upside risks which the global economy is faced with as a result of globalisation that has seen economies get so much integrated especially in the financial system.

Presenting a lecture to journalists in Washington, D.C on April 18, Professor Joseph Eugene Stiglitz of Columbia University who is also a Nobel economics prize winner, said the existing global imbalance could cause another global crisis if not tackled using new macroeconomic policies.

“New policy frame works need to be developed based on this new macroeconomic modeling, it should not be just price stability but also financial stability because globalisation has led to integration of financial system (market),” he said.

Professor Stiglitz said developed countries’ economic policies have effects on small economies (emerging and developing economies) hence the global risks and distortions.

“New global economic policies/international monetary system will help to address most of the current policy gaps leading to global imbalances. The future of International Monetary system and the steps that can lead to address the inherent weaknesses and distortions in the current system including possible solutions on both demand and supply side is important. US needs to save more China needs to consume more,” he suggested.

In a separate meeting with the International Monetary and Financial Committee on Global and Financial Markets, Mr Dominique Strauss-Kahn, the International Monetary Fund Managing Director said many old policy challenges remain unaddressed even as new ones come to the fore.

In his view, he stated that addressing these challenges forcefully holds the key to durably improving growth prospects with a view to lowering unemployment, especially among the young, who have been hit particularly hard by the crisis -related layoffs.

In most advanced economies, the still-modest pace of economic recovery calls for continued monetary accommodation and structural reforms to boost productivity and job creation. However, fiscal positions need to urgently be placed on sustainable medium-term paths, lest they pose growing risks for global bond and currency markets and curtail room for policy maneuver,” he said.

Mr Strauss Khan explained to the development committee that this will require implementing adjustment plans, and specifying further fiscal consolidation and entitlement reforms, supported by stronger fiscal rules and institutions, adding that this is particularly important in the United States, where the recent agreement to trim discretionary spending needs to be complemented with timely fundamental entitlement and tax reforms, with plans adopted this year.

“In Japan, the immediate fiscal priority is to respond to the humanitarian and reconstruction needs following the recent earthquake. Once reconstruction efforts are underway and the size of the damage is better understood, attention should turn to linking reconstruction spending to a clear fiscal strategy for bringing down the public debt ratio over the medium-term,” he said.

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