Leaders 'need political will to push changes'

But DPM Tharman is more confident now about their resolve

The Straits Times, 23 Apr 2012

WASHINGTON: Deputy Prime Minister Tharman Shanmugaratnam has called on global policymakers to do more to bring government spending back on a sustainable path.

This means changing the political narrative and persuading their constituents to go along with changes and potential sacrifices that may be needed.

'If I have to oversimplify, what we have seen for many years now has been a trend of going for short-term gains at the expense of long-term social and economic costs,' said Mr Tharman, at a panel discussion on public debt in Washington on Saturday.

'Now we have to do exactly the reverse... We've got to bring the long-term agenda of growth and social equity to the short-term political and economic discourse.'

Speaking at a separate press conference earlier, Mr Tharman noted that the goal in the medium term, was for these advanced economies to get back to normal growth within the next two to three years.

This was essential not only for fiscal sustainability within the affected countries, but also for returning confidence to the broader global economy.

He noted, however, that he is more confident now, compared to a few years ago, about the resolve of major advanced countries in tackling their deep-rooted economic problems.

Speaking in his capacity as chairman of the International Monetary Fund's (IMF) governing panel at the press conference, Mr Tharman said he sensed determination - political courage even - in financial leaders who wanted to get to the heart of difficult problems.

'There have been very strong expectations built up over the years for more of the same. It has taken tremendous political courage, particularly in the last year, to begin to switch course and paint a vision that leads to a better future,' he told reporters.

'It is going to be a long road. There will be pitfalls along the way (but) I'm a lot more confident now than I was a few years ago.'

Mr Tharman did not name any country in particular, though Europe has come under significant pressure in the past week to do more to rein in rising public debt, and to find ways to create jobs and economic growth.

Several countries, including Singapore, agreed last week to lend more money to the IMF to help contain Europe's long-running debt crisis.

But top finance leaders warned that this new US$430billion (S$537billion) 'firewall' was not a solution in itself, and that Europe and other troubled economies needed to undertake more creative and aggressive reforms.

In the same breath, the minister also cautioned emerging economies which have been performing well against hubris.

'We will have to avoid thinking that we have got it all right, whether it is on fiscal policies or savings policies or competitiveness policies, that we have discovered the new golden equilibrium,' said Mr Tharman.

'There is a lot of learning to do on both sides.'

Mr Tharman arrived in Washington on Thursday for a series of IMF and Group of 20 finance ministers' meetings. He will travel to Boston and New York this week to visit several tertiary education institutions.

Elaborating on his view at the panel discussion on public debt, he said that the resulting changes to fiscal policy need not mean a wholesale retreat of the government from the public sphere - as some politicians in the United States are advocating.

If anything, an activist state, albeit one focused on fewer tasks, is needed if economically distressed countries are to rebuild their social compact in the global economy, he argued.

It is uncertain whether European and US politicians will have any luck in budging the political conversation from increasingly entrenched positions on the left and right. What is clear is that their countries' fiscal picture is getting worse in the near future.

IMF managing director Christine Lagarde pointed out at the same panel discussion that the debt to gross domestic product ratio for advanced economies would hit 100 per cent next year, up from 75 per cent in 2007.

'This is the highest in over 130 years, except for the very particular period of World War II,' she said.

'High public debt is a drag on growth. We risk renewed turmoil if we do not act with sufficient vigour.'