Magazine article Financial Management (UK)

Mayday Lender: The International Monetary Fund Is Trying to Stimulate Global Growth While at the Same Time Preventing Another Crisis. David Lipton, Its First Deputy MD, Explains How, While on Page 24 the Archbishop of Canterbury - a Vocal Critic of Bodies Such as the IMF and the World Bank - Gives His View

Magazine article Financial Management (UK)

Mayday Lender: The International Monetary Fund Is Trying to Stimulate Global Growth While at the Same Time Preventing Another Crisis. David Lipton, Its First Deputy MD, Explains How, While on Page 24 the Archbishop of Canterbury - a Vocal Critic of Bodies Such as the IMF and the World Bank - Gives His View

Article excerpt

avid Lipton has something to get off his chest. The second in command to Christine Lagarde at the International Monetary Fund (IMF) picks an opportune moment in our interview to tell me why a failure to harmonise accounting standards could prove catastrophic. "A global financial and non-financial economy that runs on different accounting standards adds to complexity and encourages efforts to practise arbitrage with these regulatory systems," he says.

This issue remains a huge obstacle for his organisation which has a mission to deliver global stability and prosperity. "A failure to harmonise international financial reporting standards and US Gaap means that people will try to put things where the regulations and accounting standards favour the registration of certain activities," he says. "It really requires countries of the world and those important practitioners in accounting to realise that we all have a mutual gain in harmonisation."

By lodging these thoughts with Financial Management, Lipton can reasonably assume that CIMA's global membership will help to spread his message around the world. The quid pro quo is that, over the course of our interview in the IMF's boardroom at Washington DC, I get to learn how the organisation's strategy-makers affect all of us, whether we're working in companies, financial institutions, governments or even intergovernmental bodies such as the IMF.

Fresh from chairing an economic conference at the IMF complex (a diplomatic neutral zone), he is soon in full stride, explaining how his organisation is striving to meet an unprecedented set of challenges. In doing so, he is keen to show how this much-vilified institution - associated with the "shock doctrine" that many critics feel has been imposed on weak or transforming economies - has changed. Lipton himself was an architect of the post-Soviet restructuring process in Russia and Poland in an earlier time at the IMF before serving in high-profile advisory roles for both the Clinton and Obama administrations. Part of that approach entails looking at the broader expectations of countries when improving their prospects for growth while reducing their vulnerability to any further possible shocks after the 2007-08 financial crisis. That means seeking to increase employment rather than focusing purely on GDP growth, thereby improving their chances of achieving long-term stability.

"We're working very hard to get the global economy going again. We're also working hard to change and improve the regulatory framework for banks and financial companies, so that there's less chance of another financial crisis," he says. "This was a crisis that has in some countries involved extreme over-indebtedness, not only in the public sector but also in banks, corporations and households, along with huge slack in the economy and very high unemployment. So the question of how to get budgets adjusted to deal with the high debt, but to do it in a way that accounts for the fact that unemployment is very high, is kind of a new challenge in advanced economies that are in a currency zone."

Out of the abyss

Lipton explains that the IMF has had to reshape itself each time global financial and economic systems have changed since its inception at the end of the second world war. This is because "our members - nation states - gave us the job of helping to promote growth, come hell or high water, and to preserve global stability".

The landscape has changed hugely since the organisation was mandated to preserve fixed exchange-rate systems after the 1944 summit at Bretton Woods, New Hampshire, led to its formation. "We've seen financial crises that have each reflected weaknesses that went unaddressed, either in the world economy or in some part of it," Lipton says.

He cites examples including the Latin American debt crisis of the early 1980s, when commercial lending became a problem; the collapse of eastern European communism in the late 1980s, "where in essence communism was the problem"; and the Asian financial crisis in the late 1990s, "when the East Asian miracle turned out to be based on some things that weren't sustainable". …

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