India and China have made important in-roads into reducing poverty, a top International Monetary Fund (IMF) official said, adding at the same time with high growth, they have also seen rising inequality.
"India and China too have made important in-roads into reducing poverty. Yet, with high growth, they have also seen rising inequality. Those inequalities need more attention. So we need growth. We need equitable growth. We need inclusive growth," IMF managing director, Christine Lagarde, said.
In her address to the Brookings Institution – a Washington-based think-tank, Lagarde said the rebalancing of the global economy — a shift in demand from external deficit to surplus countries — is key and something that the IMF has been advocating for some time.
"It is even more important now. We are seeing some promising signs — in China, for example, albeit partially. But we know that more needs to be done," she said.
"We also know, based on recent IMF research, that a more equitable distribution of income can help promote economic and financial stability, and more lasting growth," she said.
"Brazil, for example, reduced inequality significantly from the early 1990s through a focused and efficient set of transfer programmes. If other countries were to reduce inequality by as much as Brazil, our analysis shows that periods of uninterrupted high growth could be 50 per cent longer than they might otherwise be," Lagarde said.
The IMF managing director said they need financial systems that support — not destabilise — the economy. This means repairing financial systems so they can deliver credit, growth and jobs. This means better regulation and supervision, and coordination across countries, to prevent the recurrence of reckless risk-taking. And, it means getting the financial sector to pay its fair share.
"We dare not be complacent on financial sector reform. The mission has not been accomplished—the mission is still to be accomplished," she added.
"We must improve competitiveness and have better functioning labor markets so that we can generate more jobs. The focus should be on getting people back to work. Recent initiatives in Ireland are a good example—including targeted training as well as incentives for workers to take-up job opportunities, and for employers to take-on people who are unemployed," Lagarde said.
Also as countries undertake the sometimes wrenching reforms that are needed, the social fabric is in danger of being stretched. So they must protect and reinforce appropriate safety nets, she argued.
This is an important goal in many of the programmes that the IMF is supporting, she added.