IMF’s ‘strong, sustainable, balanced growth’ won’t help G20

“Strong, sustainable and balanced growth” — SSBG — is the rallying cry coined for the meetings of the International Monetary Fund and the G20 in Washington this weekend. “Joint action matters to advance the G20’s SSBG goal,” the IMF states in a dossier prepared for G20 finance ministers and central bank governors, including Scott Morrison and Philip Lowe, arriving for the meetings.

The abiding lesson of the global financial crisis, the IMF says, is that all economies are connected: “In a deeply integrated global economy, national developments and policies are quickly spilling over from one country to another. Financial and real shocks travel from advanced economies to emerging economies and, increasingly, also from emerging economies to advanced economies; and the effects of domestic policies can be felt globally.”

The IMF contends that the simultaneous use of fiscal stimulus measures by many G20 members during the GFC succeeded in moderating its worst effects. The benefits were not only domestic, as each country’s efforts contributed to demand everywhere.

Australia certainly gained from China’s huge stimulus, which sharply lifted returns from the resources industry in 2010-11, although the IMF says China’s continued use of credit to boost demand is one of the biggest risks facing the global economy.

The fund has modelled what would happen if all G20 members acted on the policy recommendations it makes in its annual assessments of each country. For Australia, it had urged cutting company and personal income taxes while lifting the GST, slowing down the return to budget surplus and spending more on infrastructure and research and development incentives. If all G20 members accepted IMF advice, the world economy would be 3.5 per cent larger by 2028, the fund calculates.

For the fund, SSBG serves as a portmanteau containing all of its obsessions, from global deficits and sovereign debts to “inclusiveness” and climate change. “All aspects of the G20’s SSBG goal have to be considered together,” it says. “The sustainability of growth will ultimately require that growth is also balanced, and vice versa.”

This is feel-good economics: finance ministers can declare they are doing something for the common good without agreeing to do anything they weren’t going to do anyway. It has become the G20’s operating model.

The G20 was formed in 1999 in the wake of the Asian financial crisis, when it was recognised there was interdependency between the main advanced and emerging nations as well as several smaller economies that were capable of generating global shockwaves, such as Argentina, Indonesia and Saudi Arabia. Australia gained entry because of Peter Costello’s intervention as treasurer, particularly in support of Indonesia, during that crisis.

That crisis showed there was scope for co-operation between governments independent of the IMF’s formal role, but until the G20 there was no forum where the finance ministers and central bankers of affected countries could meet to co-ordinate action.

The G20 was running out of useful work to do when the GFC struck. It was then elevated to a leaders’ forum.

It was again losing its way by 2013, when it was Australia’s turn to chair the forum. Joe Hockey as treasurer and his department secretary Martin Parkinson came up with the idea of getting finance ministers to commit to action with the objective of lifting global growth by two percentage points by 2018.

At a G20 meeting in Cairns, Hockey deployed the talents of a charity auctioneer as he wheedled new structural reform commitments from fellow ministers.

The IMF has calculated that structural reforms implemented by G20 nations since 2013 would add 1.2 percentage points to global growth by next year. The reality is that these numbers are a triumph of modelling over reality. There was only the most tenuous link between reforms such as improving childcare, reducing red tape or signing bilateral trade agreements — to pick three elements of Australia’s G20 commit­ments — and global growth.

The failure of the G20 commitments to change behaviour is shown most starkly in the realm of trade. Following the first leaders’ meeting, the G20 members vowed to eschew protectionism as they confronted the crisis. They then proceeded to implement an average of about 300 protectionist measures against each other during each subsequent year.

The election of Donald Trump on an overtly protectionist platform brings new power politics to trade. Although his big threats to impose blanket tariffs on Mexico and China have not been implemented, there have been hundreds of minor actions — such as anti-dumping proceedings or foreign investment bans — aimed at G20 partners. A European trade monitoring centre says that by contrast the number of actions by other G20 nations affecting US interests has dropped, reflecting wariness of the new US administration. It suggests the aggressive stance of the Trump administration is having an impact where G20 commitments have repeatedly failed.

There is undoubtedly value in a forum where finance ministers and central bankers of the nations most important for the smooth running of the global economy can discuss common challenges. Central bankers are constantly travelling and in touch with each other, but finance ministers have fewer opportunities, so Morrison should return with a better sense of how the global economy is evolving. Improved personal relationships among ministers also make it easier to pick up the phone when bilateral problems emerge. It is a pity that the IMF cannot provide them with more insightful analysis than SSBG.