There is plenty to occupy minds at the October annual meetings of the International Monetary Fund and World Bank in Lima. China has implanted itself in the top echelons of the world economy and finance, yet has been at the centre of perturbation over what appears to be a larger-than-expected economic slowdown. Showing a degree of sensitivity to global economic developments that many critics (wrongly) claim it never hitherto embodied, the Federal Reserve is still prevaricating over what appears to be an inevitable rise in interest rates, nine years after the last one. Europe has stabilised after a lull in the summer outbreak of Greek thunder and lightning – although all parties accept that bad weather will resume again before the sun shines. We devote the October 2015 Bulletin to the interplay of forces between world governance and the still fragile progress of the world economy.
The Fed’s hesitation over interest rate ‘lift-off’ may have been justified on monetary grounds; from a psychological point of view, it was a flawed decision, since the Fed’s fears, now on full view, can be much more readily transmitted to others. In a masterful historical summary of the imbalances over individual economies’ size and IMF representation, Rakesh Mohan, executive director for India at the Fund, sets out the reasons why Europe, in particular, needs to relinquish voting weight in coming years. ‘The centre of gravity of the global economy is shifting back towards Asia from the North Atlantic. Yet there is little evidence of this change reflected in the framework of global economic governance, where we see a stalemate over the international financial institutions,’ he writes. ‘The impasse seems to indicate the advanced economies’ reluctance to countenance broader governance changes, despite these momentous shifts.’ Darrell Delamaide emphasises that Yellen’s ‘No’ (heavily backed by the rest of the FOMC rate-deciding committee) does not bind her hands for the rest of the year. Meghnad Desai, co-author with David Marsh of a blunt 31 August commentary listing 10 points why the Fed should lift rates now, writes flatly that the Fed’s nervousness over ‘lift-off’ was a mistake that heightens the danger of another 2008-style crash. He calls on readers to prepare for a coming storm. We list the protagonists in the forthcoming debtor versus creditor skirmish in Europe over the Greek bail-out package, where the overall aims, but not individual steps towards implementation, have been agreed. Newly reconfirmed Prime Minister Alexis Tsipras will be exploring new methods of maximising access to funds while minimising a further economic squeeze. Fresh challenges are on display elsewhere. Kingsley Chiedu Moghalu comments on the first cabinet appointment – after months of waiting – by Nigerian President Muhammadu Buhari.
Pope Francis has visited the US, underlining his wish to make a deep imprint on the global economic stage, the subject of a penetrating commentary by David Smith. David Cameron, the UK prime minister, is preparing for a referendum by 2017 on whether Britain will remain in the EU. David Owen and David Marsh write that restructuring the EU into a euro bloc and a wider grouping enshrining the principles of the single market would be a helpful policy not just for the UK but for the rest of the EU. Mojmir Hampl, deputy governor of the Czech National Bank, warns that Britain’s decision will have significant repercussions for the whole continent. William Keegan explains how OMFIF Chairman John Plender’s latest book shows that capitalism contains not so much the seeds of its own destruction; more the seeds of its own recurrent crises. Of this truth, in Lima and beyond, there will be no shortage of evidence.