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Q&A with IMF's Georgieva: Japan can do more for working women

New managing director urges use of fiscal and monetary policy to lift growth

IMF Managing Director Kristalina Georgieva speaks to reporters in Tokyo on Nov. 25. (Photo by Masayuki Terazawa)

TOKYO -- Women have a key role to play in Japan's economic future, according to Kristalina Georgieva, the newly appointed managing director of the International Monetary Fund, who sat down with the Nikkei Asian Review for an interview on Monday.

Below is an edited transcript of the interview:

Q: The IMF recently warned of a synchronized slowdown in the global economy. What policies are needed to deal with this risk?

A: We are in a synchronized slowdown this year. Measured by GDP, 90% of the world economy has slowed down in 2019. Growth for the world is only 3%, which is the lowest in the last decade. What are the reasons? Primarily uncertainty -- mostly because of trade tensions, Brexit and so on. What can be done? What we recommend is a mix of monetary, fiscal and structural policies.

If you have monetary space, use it. Not all countries have it. If you have it, it is appropriate to take an accommodative monetary policy to stimulate growth. In fact, growth would have been a half percentage point slower if monetary policy hadn't stepped up.

But monetary policy cannot do all the ... lifting. We do need for the countries that have fiscal space to provide more stimulus. And for everybody, structural reforms are absolutely key, not only for growth today but also for competitiveness tomorrow. Japan has been using all ... three parts, and we're saying step on the pedal of structural reforms. This is where Japan would get the biggest impact for long-term growth.

Q: What does the fund see as the most important economic policies for Japan at the moment?

A: The key message is that economic performance in Japan is solid, and the country is resilient. But the biggest problem in Japan is the aging and shrinking population. Even Bulgarian yogurt, which contributes to good health, cannot stop the aging of society, though it may extend lives.

So what we are strongly advising the Japanese government is, look at expenditures and how they can possibly be optimized. We are stressing that Japan can do more to bring [more] women into the workplace. Women should get more senior, sophisticated jobs, be provided with training ... and get higher wages. Look at corporate governance. There has been modernization, but more can be done. Companies can be more proactively encouraged to spend.

Q: You are the first managing director of the IMF to come from an emerging economy, Bulgaria. What encouraged you to aim for this position?

A: As a managing director, my duty is to serve all 189 [member] countries: [rich or] poor, big or small. But also, as somebody coming from an emerging-market economy, to bring that perspective. Emerging markets are now more than half of the world economy. They have some specificities, and they are, more than the old economies, relying on the IMF often for policy and financial support. As somebody who has lived through IMF-supported policy reforms, I know the pain and the gain. I can bring this empathy to emerging-market economies.

Q: Since you assumed the top job at the IMF in October, you have said that Germany, South Korea and the Netherlands should take stimulus measures to prop up the global economy. In this respect, how do you assess Japan's fiscal capacity for another stimulus package?

A: Let me start with Germany, South Korea and the Netherlands. All three countries have now introduced fiscal stimulus packages. In the case of Germany, it is a three quarters percentage [point] boost. And on top of it, Germany has also introduced a very large [program on] climate [change] -- in a sense a stimulus package. Could these countries do more? One can argue that they are looking at what the future may bring, and keeping some of their powder dry, should it be necessary for them to step up.

The most serious systemic point is that we do want to see a more aggressive use of fiscal capacity to boost growth. How is that applied to Japan? Japan is planning to bring some additional fiscal measures to stimulate growth. There is a supplementary budget under preparation. In addition to monetary policy, it is an appropriate action to take.

What we see also in Japan is its potential to create more wage-driven ... demand in the economy. It is somewhat unusual [given that] it already has almost full employment. Unemployment in Japan is very low. Wages are stagnant.

What we know is that for the purpose of both inflation to reach the [Bank of Japan's] target of 2%, and for growth, a country that has a corporate sector in a very favorable cash position might want to think about using this for the sake of revitalizing the economy. And in that area, structural reform will be helpful. Japan has done quite a lot, but it has ... space to [do more].

Q: The U.S.-China trade war has affected other parts of the world as well. Will signs of a thaw ease the pain?

A: We came to the conclusion that the cost of China-U. S. trade tensions is about 0.8% of [global] GDP. Should the tariffs imposed on Chinese goods by the U.S. be removed, and those [imposed] on the U.S. by China be removed, we estimate this would bring a 0.2% to 0.3% boost to GDP. So we are still left with half a percentage point of GDP lost because of the damage already done.

Investor confidence has been dented and investments have not happened. On top of that, a trade truce is good, but trade peace is better. And to get trade peace, what we need is focusing more on why there is so much tension in the trade system. For example, there's concern about [intellectual] property rights protection. E-commerce is out of the trade agreement. Services are out, but they are now a large part of the global economy. So these issues have to be addressed. Trade can serve as the natural engine of growth, as it has been over the last decades.

Q: A recent IMF paper pointed to the digital economy's role in fostering low global inflation. Do you think this trend will intensify?

A: What we think actually is the main root cause [is] low interest rates, [which] contribute to the environment of low inflation. The fact [is] that we actually have low productivity growth, and we have cost-cutting that comes from e-trade. So that is creating a rather unusual situation in which technological advancements are happening on a massive scale but productivity gains are not being registered.

The result is we are stuck in low growth, low interest rates, and we have low inflation. How to get unstuck? We would hope that more coordinated policy action among our member states can bring a bit more dynamism on the productivity side, and on the interest [and] inflation side.

Many [have used] the phrase "low for longer." That's the new normal. We have to carefully monitor and see. As has been [seen] many times seen in history, there would be a moment in which accumulated innovation and technological advancements do take us to a new upswing on productivity. Maybe that would happen. [Or] maybe the new normal is exactly as the skeptics describe it.

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