John Lipsky and Asia's Wealth

In a speech at the China Development Forum in Beijing John P. Lipsky, who is the first deputy managing director of the International Monetary Fund, offered a grim prognosis for the world’s wealthiest countries, which are at a level of indebtedness not recorded since the aftermath of World War II. This is according to The New York Times article I.M.F. Gives Debt Warning for the Wealthiest Nations published yesterday.

Mr. Lipsky has imparted some of his valuable knowledge at several Japan Society events before, in 2003's Has Japan Turned the Corner? A View from the U.S. Treasury and most recently, December 2009's View from the IMF: Building a Post-Crisis Global Economy.

At the April G20 meeting in London, the IMF underwent a significant strengthening of its role and lending capacity. Today it sees primary challenges as moving beyond the current fractured international financial system in restoring global growth on a more balanced and sustainable basis while preserving open global markets, and seeking to combat social strains wrought by the Great Recession.

Here is an excerpt from Sunday's article:

"Mr. Lipsky said the average ratio of debt to gross domestic product in advanced economies was expected this year to reach the level that prevailed in 1950. Even assuming that fiscal stimulus programs are withdrawn in the next few years, that ratio is projected to rise to 110 percent by the end of 2014, from 75 percent at the end of 2007.

The ratio is expected to be close to or to exceed 100 percent for five members of the Group of 7 countries — Britain, France, Italy, Japan and the United States — by 2014. Canada and Germany are the other G-7 members.

“Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery,” Mr. Lipsky said. Maintaining public debt at post-crisis levels could reduce potential growth in advanced economies as much as half a percentage point annually, compared with projections before the crisis."