January 26, 2021

Ten years after the crisis, is another coming? | Economy

Ten years after the crisis, is another coming? | Economy



Batik shirts are omnipresent in the labyrinthine corridors of the Bali International Convention Center. From the local employees who give greetings with their hands together in vertical to the bosses of the International Monetary Fund (IMF) want to show with these colorful fabrics the best of Indonesian culture. The organization even suggested to the journalists that they wear blazers or shirts dyed with this centenary technique. But the representatives of the IMF have not met on this island south of the Java Sea to talk about fashion, but to analyze something as abstract and difficult to realize as the future of the world.

The global economy grows at a good pace. Unemployment reaches record lows in the United States, Japan, Germany and the United Kingdom. The banks have strengthened and re-lend. The investment picks up And the Stock Exchanges, although this week have been given a good cheer, chained a long period of increases. So why in Bali these days has not stopped talking about when the next recession is coming, what will it look like and if the world will be ready to face it?

The answer is complex, but it could be summed up in one sentence: the experts of the Fund see increasingly close risks that until now seemed distant. They refer to global dangers, capable of going around like a sock to the conjuncture.

Many countries have not taken advantage of the good years to make reforms

The problem is not now. But tomorrow. Or the day after tomorrow. Because, according to the projections of the Fund, the world GDP will grow this year and the next one a respectable 3.7%. But, as he says the managing director of the IMF, Christine Lagarde, many countries have not taken advantage of the sunny days to fix the roof. And he fears that, when the rains come, the leaks flood the house.

Among the threats that are glimpsed, the most pressing is the commercial war. But behind it comes a cataract of unsolved problems: debt, financial tensions in emerging countries, rising oil prices, the rise of populist leaders with agendas that trigger uncertainty … In Europe, above all, political risks worry, with doubts growing around the Brexit and the plans of the Italian Government.

Raghuram Rajan, one of the few economists who in 2005 warned of the imbalances that would end in the Great Recession, admits from Chicago the difficulty of anticipating if the word crisis returns to haunt. On the one hand, it highlights the strong growth in the US. On the other hand, it points out the high levels of debt, interest rate hikes, threats to trade, high prices of raw materials and the vulnerabilities that some countries present.

"It is not easy to predict if these vulnerabilities are going to become mini-crises, and if these mini-crises will do so in larger ones. The sooner the threat of commercial war disappears, the better it will be for everyone. But rate hikes are inevitable. We can not definitively postpone the normalization of monetary policy, "adds Rajan, the IMF's chief economist between 2003 and 2007, when the last financial time bomb exploded.

"Rate increases are inevitable. They can not be postponed, "says Raghuram Rajan

Nobody in the IMF dares to take out the crystal ball. But they do lament for weaknesses that have now been exposed. At his Thursday press conference in Bali, Lagarde launched three questions. Is the economy strong enough? Is it safe enough? And have the benefits of these years of growth been sufficiently shared? The head of the Fund responded with a "no" to the three questions.

The growing strength of the dollar and the increases of the rates decreed by the US Federal Reserve tighten the nuts to the emerging economies, which are very dependent on foreign capital. These countries benefited from a barrage of dollars in the ultra-cheap era, and now they see that things get complicated. It has long been known that this policy had an expiration date, but tensions are now coming to the surface. A hopeful symptom is that, for now, the contagion of the problems of Argentina and Turkey to other developing countries has been very limited.

Imbalances

The debt, in addition, goes off. According to the calculations of the Fund, the global figure, which includes public and private, touches new maximums: 182 billion dollars (about 157 billion euros). Following its evolution gives a certain vertigo: it exceeds its level of more than 60% in 2007. After the global financial crisis, the public debt of developed countries soared due to stimulus measures and bank bailouts.

But in Indonesia, everything has been talked about trade. Or, rather, of obstacles to trade. And how far will the measures and countermeasures that the US and China will launch like a boomerang go? While the heads of the IMF asked the leaders of the two superpowers to reduce the conflict, only drums of war were heard in Washington and Beijing. First it was Vice President Mike Pence, who accused China of interfering in the US legislative elections in November. Foreign Minister Wang Yu responded that he demanded Trump to put an end to his "wrong actions", which, he said, threaten the national interest of the world's second largest economy.

Fund experts are coming closer and closer to problems that once seemed far away

In the Fund they watch with special attention the agreement that Trump started earlier this month to Mexico and Canada to replace the old FTA. The question is whether this is an exclusive model for the three countries of North America, or if on the contrary the president of "America first" intends to export this example to reconfigure its commercial pacts with other countries of the world on new bases.

The IMF has encouraged countries to modernize the global trading system. But in the body based in Washington the unpleasant feeling of not knowing what objectives the United States is pursuing is widespread. While this is not clear, Lagarde asks world leaders not to get carried away by "a collective amnesia" and do not forget all the bad that brought the protectionist wave of the interwar period.

The commercial conflict is juxtaposed with currency. Washington insists that Beijing manipulates the yuan's price to boost its foreign sector. In the Fund they claim to have no proof of this manipulation, and they encourage China to maintain a flexible exchange rate. Bali was also visited by US Treasury Secretary Steven Mnuchin, who said he will maintain the "efforts to confront restrictive business practices around the world," in a message clearly addressed to his great commercial rival.

Europe plays the lead role in this assembly of the IMF and the World Bank. In the appearances of the leaders, there is a lack of questions about the continent that was holding the attention during the euro crisis. But when there are, two countries monopolize them: United Kingdom and Italy. Or, which is the same, Brexit and the fiscal plans of the populist government of La Liga and 5 Stars Movement. This area of ​​the world worries less, but that does not mean that the problems of the monetary union are out of date.

Italy worries

Carsten Brzeski, chief economist at ING Germany, believes that, along with the trade war, the greatest risk is the possible return of the euro's problems. "External shocks can cause a recession. For now, the Italian budget is not enough to rekindle the existential crisis of the monetary union. But if this fiscal crisis turns into politics we will enter into a totally different game, "he concludes.

Ten years after the Great Recession the recovery has been uneven

It is now a decade since the fall of Lehman Brothers. The World Economic Perspectives document compares the current world with the one before that crisis that changed the lives of millions of people: the global public debt is 52% of GDP – compared to 36% prior to 2008-; the balance sheets of the central banks, especially of the rich countries, have multiplied; and emerging countries now account for 60% of global GDP, compared to 44% previously, "which reflects a weak recovery of advanced economies," says the IMF text.

Ten years after the coup, the recovery is uneven. While Europe's wounds are still healing, the United States began to grow earlier and faster, so its central bank also began earlier to release ballast and return to orthodoxy. If nothing goes wrong in the next semester, this expansion will have been the largest of its economy after World War II. And if economists agree on something, everything that goes up has to go down. The question is when and how will that fall.

James Galbraith is skeptical about the IMF's predictive capabilities, reminiscent of his past slip record. "The Fund's warnings of a worsening global climate should only be read as a sign that its failure to predict other crises has not yet been forgotten," says this American economist, who in 2016 advised Democratic candidate Bernie Sanders.

When asked for his opinion on whether a recession is looming or just a slowdown, Galbraith draws on "the immortal words" of Zhou Enlai, first head of government of the People's Republic of China. It refers to the famous episode in which he was asked about the French Revolution – according to other sources, he actually spoke of May '68. "Too early to say," the communist leader replied.

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