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Economic leaders face era of industrial policy threatening growth prospects

Policymakers brace for more protectionism and demise of 'neoliberalism' if Trump is re-elected in the US

IMF, International Monetary Fund

NYT Washington

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By Alan Rappeport
 
At the annual meetings of the International Monetary Fund (IMF) and the World Bank this week, Kristalina Georgieva, the head of the IMF, expressed a mix of relief and trepidation about the state of the world economy. 
Policymakers had tamed rapid inflation without causing a global recession. Yet another big economic problem loomed. Rising protectionism and thousands of new industrial policy measures enacted by countries over the last year are threatening future growth prospects. 
“Trade, for the first time, is not the engine of growth,” Georgieva said at a Bretton Woods Committee event. 
Eighty years after the IMF and the World Bank were created to stabilise the global economy in the wake of World War II, the role of those organisations and the guiding principles has fallen out of fashion. But today, those who espouse such ‘neoliberal’ notions of open markets are increasingly lonely voices. 
 
They could soon become even more isolated if former US President Donald Trump is re-elected. Trump is promising to upend the rules of international commerce by ratcheting up the kind of trade wars and protectionist policies that characterised his first term. 
Distrust over global institutions has also been growing in some of the countries those organisations are trying to help. Protests have erupted in Kenya, Bangladesh, and Sri Lanka in recent years over the IMF’s lending terms, which often require onerous fiscal reforms. 
The World Bank has faced its own controversies and this year undertook an internal investigation into its investments in international educational programs following allegations of abuse. 
The WTO continues to be hobbled by a decision made during the Trump administration to forgo appointing members to a critical appeals panel. That decision, which the Biden administration has maintained, essentially broke the WTO’s dispute settlement system. 
In Washington, the Group of 7 nations finalised plans to use interest earned on Russia’s assets to back a $50 billion loan for Ukraine. On the other side, Russia convened its own “Brics Summit” aimed at deepening financial ties among developing countries. 
The policy document Project 2025, which was drafted by some of his former White House aides, calls for the US to withdraw from the World Bank and the IMF entirely. 
The World Bank’s president, Ajay Banga, said ahead of the meetings that he would deal transparently with either future US administration and that he remains focused on fighting poverty, climate change and expanding access to health care in developing countries. Banga also noted that Trump approved funding increases for the bank while he was in office. 
“It’s pretty clear that periods of restrictions and barriers have not been periods of prosperity and strong leadership around the world,” Christine Lagarde, president of the European Central Bank, said on Wednesday. “So whoever in this country is ultimately the president, I think should at least bear that in mind.”Although there has been consternation about what a Trump presidency would mean for economic relations around the world, the Biden administration has also embraced protectionist measures and industrial policy. It does not appear that Vice President Kamala Harris would change course if she wins the election. 
©2024 The New York Times News Service

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First Published: Oct 27 2024 | 11:39 PM IST

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