Speech

Difficult But Doable

November 16, 2024

As delivered

Thank you, President Boluarte, for inviting me to today’s APEC Leaders’ retreat. Peru’s remarkable journey from hyperinflation in the 1990s to a strong macroeconomic policy framework, strong institutions, and economic stability and progress today is the right context for our discussion — we can overcome the challenges we face.

Let me start with the good news. In the US, in Europe, and even more so in Asia, inflation is retreating and — different from past inflation spikes — this has been done without the economy slipping into recession. A combination of resolute monetary policy action, easing supply chain constraints, and moderating food and energy prices is guiding us back in the direction of price stability while growth remains squarely in positive territory — we project it to reach 3.2 percent both this and next year, with APEC growing above the global average this year.

This is a remarkable achievement and yet in many countries it is not reflected in public sentiment. Inflation may be falling but the higher prices people feel in their wallets are here to stay.

And while the world economy is growing, the pace is slower than in the pre-pandemic decades by almost one percentage point — it was 3.8 percent then vs now just around 3 percent over the medium term. This is combined with a legacy of high public debt — globally reaching 100 percent of GDP. As high interest rates raise debt service and low growth hurts revenues, the impact on government budgets is tightly constricting—even more when measured against the vast demands for public spending for education, infrastructure and social services, especially in aging societies.

To make matters worse, in a more fractured world trade is no longer the powerful engine of growth it used to be. The retreat from global economic integration—driven by both national security concerns and the anger of those who lost out from it—is visible in a mushrooming of industrial policy measures, trade barriers, and protectionism. This year alone, we can expect to see over 3,000 new trade restrictions worldwide.

In this environment policy makers need to simultaneously pursue two goals:

• One, fiscal consolidation to rebuild buffers for the next shock while preserving space for priority public investments, especially in light of the massive needs of the green and digital transformations.
• Two, ambitious reforms to lift growth potential and energize job-creation, starting right away, with a focus on mobilizing private capital, improving productivity and, in some cases, building stronger institutions and governance.

Reaching the first goal involves difficult choices on how to raise revenues and make spending more efficient, also ensuring that policy actions are well-explained to earn the trust of the people.

Fiscal restraint is never popular. And our analysis shows, it’s only getting harder. Even traditionally fiscally conservative political parties are developing a taste for borrow-to-spend. But it is paramount to have prudent fiscal rules in place as an anchor for government spending.

Reaching the second goal is also not easy. The pace of reforms has been slowing since the global financial crisis as discontent has grown.

But progress is possible. APEC economies that show strong resilience demonstrate what works: good policy design, good communication and help for those who will lose out. You pursue labor market reforms, invest in human capital, R&D and physical and digital infrastructure. You deepen your capital markets and develop ecosystems that bring not only financing but knowledge, advice, and professional networks – all very critical in the world of AI.

I want to express my support for your ambition to make the Asia-Pacific region more sustainable, more digital, more resilient, and more APEC-focused. I salute your role in fostering trade and cooperation.

Economic integration and multilateral action will remain essential for raising growth and solving global problems.

As you work to further empower your citizens, include them in your nations’ progress, and grow your economies, we at the Fund stand ready as partners, always available to assist with impartial economic analysis, tailored policy advice, and financial support to members hit by shocks.

Working together, as APEC shows, remains essential for preserving economic progress.

Thank you.