Meeting of G20 Finance Minister in Buenos Aires Argentine - Photo by G20 Secretariat

JAKARTA (TheInsiderStories) – Christine Lagarde, Managing Director of the International Monetary Fund (IMF) called Group of 20 (G-20) leaders in Buenos Aires, Argentina to create decisive and collaboration action, as global growth moderates and risks increased.  

“In my meetings with G-20 Leaders over the past two days, I emphasized that global growth remains strong, but that it is moderating and becoming more uneven,” she said at the written statement on Dec. 2.

Lagarde reiterated that the pressures on emerging markets have been rising and trade tensions have begun to have a negative impact and increased downside risks. She stressed that choosing the correct policy is therefore critical for individual economies, the global economy, and for people everywhere.

“The choice is especially stark regarding trade. We estimate that, if recently raised and threatened tariffs were to remain in place and announced tariffs were implemented, about three-quarters of a percent of global GDP could be lost by 2020,” added Lagarde.

If the trade restrictions in services were reduced by 15 percent, global growth domestic products (GDP) could be higher by one-half of a percent. She stated that the choice is clear, there is an urgent need to de-escalate trade tensions, reverse recent tariff increases, and modernize the rules-based multilateral trade system.

“Another urgent issue is the excessive level of global debt—about US$182 trillion by the IMF’s estimate. It is important, particularly for highly indebted emerging-market and low-income countries, to rebuild buffers and reverse pro-cyclical fiscal policies,” she added.

According to her, increasing debt transparency, such as on the volumes and terms of loans by borrowers as well as lenders, is as important as supporting debt sustainability.

To meet the challenges facing the global economy, she made the following policy recommendations to the G-20. Firstly, to fix trade—this is priority No. , which in turn will boost growth and jobs.

Secondly, to continue to normalize monetary policy in a well-communicated, gradual, data-driven manner—and with due regard to potential spillover effects. Thirdly, address financial risks, using micro- and macro-prudential tools to tackle problems related to leveraged lending, deteriorating credit quality, and high exposure to foreign currency or foreign-owned debt.

Fourthly, use exchange rate flexibility to mitigate external pressures, avoiding tariffs and other policies that could weaken market confidence.

Finally, eliminate legal obstacles to the participation of women in the economy. This is key to tackling high and persistent inequality and would add to the growth potential of all G20 countries.

“I am also encouraged by the G20’s continued commitment to strengthen the global financial safety net, with a strong and adequately financed IMF at its center. It is important that the G20 Leaders have pledged to conclude the 15th General Review of Quotas by our Spring Meetings, and no later than the Annual Meetings in 2019,” said Lagarde.

She continued, “I also commend the authorities for their resolve in implementing their economic reform plan, which will pave the way for more inclusive and sustainable growth to benefit all Argentines. The IMF will continue to support the authorities in their endeavor.”

Indonesia Must Prepared

Meanwhile, Indonesian Finance Minister Sri Mulyani Indrawati stated that the G20 meeting at the level of leaders in Argentina today determines the direction of the economy and global governance.

She elaborated further, amid the economic crisis in the United States with the bankruptcy of Lehman Brothers and the world insurance company AIG which triggered panic and financial crisis throughout the world.

As minister of finance at that time, she saw the collapse of the economy of the US spread to Europe which caused global panic. All countries in the world strived to protect their economy, through various policies that cannot (extraordinary).

The Federal Reserves (Fed) drastically reduced interest rates from above five percent to close to zero percent, and is still coupled with Quantitative easing – injection of liquidity through the purchase of securities.

The US government bailed out to the real sector from car companies to property with the purchase of bad assets and securities. The United Kingdom and the European Union do the same thing by conducting bank bans that fail to stop public panic and inject the real sector with fiscal expansion.

All countries in the world experience the consequences of the crisis. She stated, “I remember all ASEAN countries, Australia and New Zealand carried out a blanket guarantee policy by fully guaranteeing the banking sector to ease panic and uncertainty.”

In the situation of global panic, the US’ Minister of Finance calls the Minister of Finance of the G20 member countries to form the G20 Leaders-level forum of the state, inviting the leaders of the country to meet in order to save the world economy that is approaching destruction.

The first G20 Leaders 2008 meeting was held in Washington DC, United States, and the second meeting in 2009 was in London, England. World leaders agreed to jointly save the world economy from destruction with monetary and fiscal policy, encouraging the real sector to restore stability and encourage economic growth again.

The minister said, another very important focus is to carry out regulatory and policy reforms for the banking and financial sector in order to avoid a repeat of the financial crisis from happening again.

In 2008, all leaders of the compact G20 countries agreed to save the world economy with a one-way economic policy and mutual support, because they believed that the global economy must be maintained together.

As Minister of Finance at the time of the world economic crisis, Indonesia also carried out various strategic steps in the banking sector and supportive fiscal policies to save the Indonesian economy from being negatively affected by the global economic shock.

Ten years passed, the G20 meeting in Buenos Aires-Argentina was in a different atmosphere. Solidarity, togetherness and mutual agreement ten years ago seemed to evaporate. Besides the economic recovery is still uneven, economic policies between countries are increasingly out of sync and not in the same direction.

Even the tension occurred due to trade confrontation policies, normalization of monetary policy and the Fed’s interest rate hike which President Trump disliked and led to capital outflows and exchange rate volatility in emerging countries, commodity prices, especially petroleum which fluctuated like roller coasters and competition tax policies that compete against each other (race to the bottom).

There has been important progress achieved through the G20 forum. Regulatory reform in the financial and banking sectors has been carried out which is expected to prevent excessive risk fertilization in the financial sector. In addition there are important advances in tax cooperation between countries by collaborating to combat tax avoidance through Base Erosion Profit Shifting (BEPS) and Automatic Exchange of Information (AEOI), as well as digital economic taxation.

Indonesia utilizes this partnership to improve tax compliance and increase the tax base, especially in the “high wealth” group which has so far been easy to utilize tax havens and loosening regulations between countries.

But many challenges remain unanswered and big risks still surround and overshadow the world economy. The surge in debt in various developed and developing countries, as well as the rise in corporate debt poses a real burden and economic risk.

Indrawati stated, Indonesia has a low and maintained level and debt ratio. “We must continue to maintain caution in fiscal policy and deepen the financial sector to maintain stability and avoid global turmoil.”

Trade war between countries gave birth to the G20’s desire to carry out World Trade Organization multilateral reforms.