Current state - the macroeconomic crisis

During the plenary session of International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund in Washington in April 16, 20011 the enhanced role of the IMFC as a key forum for global economic and financial cooperation was welcomed. Also, the members committed to continue working together and intensify efforts to balance global economy growth, strengthen global financial sector’s stability and its ability to support economic recovery.

The policy makers agreed that the U.S., Japan, Germany, France, U.K., India and China will be examined by the IMF and the survey will include the monitoring and comparison of budget deficits, private debt and external trade balances for signs of excess. However, the future surveys will only supplement to the macroeconomic outlook that is already evident from the publicly analysed events: the US’s aggressiveness to boost the recovery and demand of their production by implementing QE2 programme, depreciating the dollar, keeping low interest rates and stimulating economy through measures that steadily increase sovereign debt, China’s intentions to keep export leaders positions and support domestic development simultaneously by their plans to increase M2 and hold down the renminbi as long as China is in the strong economic leadership stance and Europe’s considerations regarding slow recovery, raising inflation and sovereign debts issues.

In addition, the Financial Sector Assessment Handbook prepared by the IMF in 2005 includes the macroeconomic approach which is based on the Demirgüē-Kunt and Detragiache (1998) study and is used to predict financial crises. The study showed that the macroeconomic policies cause crisis when economy growth is low and inflation is high. The practical evidences of the current macroeconomic crisis may be the following: high bond yields of the eurozone "peripheral" countries, concerns regarding the restructuring of Greece debt and uncertainties about the financing of Portuguese debt while the Europe’s economy growth is low and its recovery suffer from the pressure of high inflation as well as the US enlarged burden to repay its debt because of its excessive liquidity policy that created high inflation in its own low growth economy.

Thus, I believe that current data and macroeconomic events are enough to acknowledge that we already suffer a macroeconomic crisis and immediate solutions are required now but not then the IMF survey of the 7 most influential countries is accomplished.

Moreover, in order the cooperation goals were achieved and significant macro policies’ cross-border effects were minimized the statement from the Integrating Stability Assessments Under the Financial Sector Assessment Program into Article IV Surveillance (August 27, 2010) that determines systematic stability as the following:

“...systemic stability is most effectively achieved by each member adopting policies that promote its own “external stability” – that is, a balance of payments position that does not, and is not likely to, give rise to disruptive exchange rate movements. In the conduct of their domestic economic and financial policies, members are considered to be promoting external stability when they are promoting their own domestic stability – that is, when they comply with the obligations of Article IV, Sections 1 (i) and (ii) of the Fund’s Articles.”

should be revised and acknowledged by the IMFC that countries those are promoting only macroeconomic policies of their own domestic stability most often cause economy recessions in other regions.