By Simon Johnson
The finance ministers and central bank governors of the world gathered this weekend in Washington for the annual meeting of countries that are shareholders in the International Monetary Fund. As financial turmoil continues unabated around the world and with the IMF’s newly lowered growth forecasts to concentrate the mind, perhaps this is a good time for the Fund – or someone – to save the world.
There are three problems with this way of thinking. The world does not really need saving, at least in a short-term macroeconomic sense. If the problems do escalate, the IMF does not have enough money to make a difference. And the big dangers are primarily European — the European Union and key eurozone members have to work out some difficult political issues and their delays are hurting the global economy. But, as this weekend’s discussions illustrate, there is very little that anyone can do to push them in the right direction.
The world’s economy is slowing down, without a doubt. The latest quantification was provided Tuesday of last week in the IMF’s World Economic Outlook, which is perhaps the most comprehensive forecast of global growth and its main components (see Table 1.1). (Disclosure: I helped produce and present this view was I was chief economist at the IMF, but I left that position in summer 2008.)