IMF warns of threat to global economies posed by austerity drives

The leaders of the International Monetary Fund, the World Bank and the World Trade Organisation on Friday issued a warning about the economic and social risks of austerity programmes in a "call to action" designed to boost growth and fight protectionism.

Expressing concern about the weakness of economic activity and risen gunemployment, the IMF's Christine Lagarde, the World Bank's Robert Zoellick and the WTO's Pascal Lamy joined the heads of eight other multilateral and regional institutions in calling for policies to create jobs, tackle inequality and green the global economy.

"The world faces significant and urgent challenges that weigh heavily on prospects for future growth and on the cohesion of our societies," said the statement by the global issues group of the World Economic Forum. It was published ahead of the forum's annual meeting in Davos next week, amid concerns that 2012 will see the global economy flirt with recession as a result of the eurozone crisis.

"Our shared objective is the strengthening of growth, employment and the quality of life in every part of the world," said the statement. "But entering 2012, we worry about: decelerating global growth and rising uncertainty; high unemployment, especially youth unemployment, with all its negative economic and social consequences; potential resort to inward-looking protectionist policies."

In addition to Lagarde, Zoellick and Lamy, the signatories were Mark Carney of the Financial Stability Board, Margaret Chan of the World Health Organization, Angel Gurría of the Organisation for Economic Co-operation and Development, Donald Kaberuka of the African Development Bank, Haruhiko Kuroda of the Asian Development Bank, Luis Alberto Moreno of the Inter-American Development Bank, Josette Sheeran of the United Nations World Food Programme, and Juan Somavia of the International Labour Organisation. The forum said it was the first time the heads of the world's major institutions had come together in such a way.

Reflecting the IMF's concern about over-aggressive deficit reduction programmes, the joint statement said governments should "manage fiscal consolidation to promote rather than reduce prospects for growth and employment. It should be applied in a socially responsible manner."

The 11-strong group said it wanted to see a comprehensive action plan that could be agreed and implemented at the meeting of the G20 gathering of developed and developing nations in Mexico in June.

"We call on leaders to devote the necessary political energy to deliver concrete actions to exit the crisis and boost growth. Every country, working through its regional economic organisations and development banks and through the international financial and UN institutions, has a role to play."

While acknowledging that the global economy faced severe challenges, the action plan said momentum could be regained by increasing spending on infrastructure and by "beginning to realise the promise of a greener economy". To do so, the world would need an open trading system, resilient cross-border finance, sustainable government finances, determined and coordinated structural reforms and measures to address inequalities in all countries.

In the short term, the 11 leaders said the two most important challenges were to solve the sovereign debt and banking crisis and to restart growth. It urged the implementation of new, tougher regulations for finance and the rapid recapitalisation of banks where necessary.

With more than 200 million people currently unemployed around the world, the call to action said policymakers should "address youth and long-term unemployment to provide decent work prospects, along with country-specific structural reforms that are fairly implemented to achieve faster growth. Through dialogue, labour market reforms can be agreed that can both raise employment levels and ease fiscal adjustment."

It added: "Boosting jobs and investing in human capital is the most promising way of tackling inequality. We support the work of the ILO and others in assisting governments to examine realistic policy options, including cost-effective social policies to cushion the most vulnerable from adversity. Investment should target skills and education and thus equip people for the future.

"Rising inequality calls for heightened consideration of more inclusive models of growth. We must deliver tangible improvements in material living standards and greater social cohesion."

The call for action urged governments to resist the temptation to resort to trade barriers in an attempt to safeguard jobs. "Countries must reaffirm that none will resort to growth-destroying protectionism and demonstrate that trade restrictions introduced in response to the economic crisis will be rolled back."

The Guardian