David Marsh: For Future of Global Economy, Watch the P-Group of Nations

2015-10-12 IMI

The Official Monetary and Financial Institutions Forum (OMFIF) is a global financial think tank headquartered in London. David Marsh: Managing Director, Official Monetary and Financial Institutions Forum (OMFIF) LIMA, Peru (MarketWatch) — The bright spots are getting brighter. There was a somewhat gloomy buildup to the annual meetings of the World Bank and International Monetary Fund in Lima at the weekend. The Federal Reserve didn’t help by indulging in protracted agonizing over whether to raise interest rates, deciding against a hike on Sept. 17. In earlier years, the Fed often stood accused of failing to take the rest of the world into consideration in its monetary decisions. In the manner of a newly baptized chief executive who has overdosed on psychological counselling, Fed officials now seem laboriously to leave no stone unturned in searching for reasons not to raise rates. Yet, as Stan Fischer, the lugubrious Fed vice chairman, said on Sunday in Lima, emerging market and other countries have told the U.S. central bank to go ahead and “just do it.” The Fed has made much of Chinese uncertainties. Yet Beijing officials have been at pains to stress — in what seems justified cautious optimism — that the worst of China’s stock market and currency adjustments is now over and that long-planned Chinese growth slowdown is far from dramatic. One of the most encouraging features of the Lima gathering was the assertion from China that it will continue improving transparency on internationally relevant (and sensitive) Chinese economic data (for example, on the composition of foreign reserves). This will have repercussions on other large emerging-market economies, such as India and Saudi Arabia, which could improve reporting on parts of their economic and financial arrangements. As has been the case in Europe over the past 20 years, in the emerging world, too, the smaller countries have shown the way in spurring economic reforms and laying down the groundwork for steady growth. In assembling a future road map, we might do worse than focusing on the so-called P-Group of emerging market economies — Peru, Paraguay, Poland and the Philippines, the subject of a seminar in Lima on Saturday, sponsored by the Official Monetary and Financial Institutions Forum. (If one wished to be more expansive, the grouping could be extended to Pakistan and Panama as well, both of which display some encouraging economic patterns). As Adrian Armas, chief economist of the Central Bank of Peru, says, one unifying factor is “P equals Pacific”. Even though Peru is the only member of the P-Group to be a signatory of the Trans-Pacific Partnership trade accord agreed earlier this month, a Pacific-led fillip to international trade and investment will have benevolent effects on many countries beyond the seaboard. The six countries named above have disparate sizes of gross domestic product, from $30 billion to $40 billion in the case of Paraguay and Panama to $200 billon to $500 billion for Peru, Pakistan, Philippines and Poland, but they show important common factors. They are all registering annual growth rates comfortably above 3%. They benefit from growing populations, especially of the middle class; they have weathered softer commodity prices relatively well; they have introduced beneficial programs to improve the workings of product and labor markets; and they are implementing generally sensible monetary and fiscal policies. Above all, they have overcome the “tyranny of geography,” using the advantages of globalization to escape regional drawbacks. Poland no longer has to be overburdened by proximity to Ukraine and Russia. Paraguay can sidestep being sandwiched between two faltering economies, Brazil and Argentina. The Philippines does not need unduly to fear ripples from a Chinese slowdown. Global economy watchers should upgrade their lexicon of useful acronyms. For names to follow, the message is this: Peruse the P-Group.

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David Marsh: For Future of Global Economy, Watch the P-Group of Nations

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