Prime Minister Stephen Harper speaks at his closing news conference at the G8 SummitBlair Gable/Reuters
The International Monetary Fund has issued a secret recipe for global economic recovery that is sure to taste sour to many G20 leaders.
The confidential report, obtained by The Canadian Press, says advanced countries must make government spending cuts their top priority - the same message Prime Minister Stephen Harper and some other leaders are pushing at this weekend's G20 summit.
The sacrifices would be great, but the IMF says the rewards would be enormous, with millions of new jobs, widespread reduction in poverty, and stronger global growth. It predicts world output would increase by $1.5-trillion (U.S.) over the medium term.
The paper was commissioned by the Group of 20 countries ahead of the summit so the group would have impartial and nuanced advice as it figures out how to repair the world economy for the long haul. It has been kept confidential because the G20 members have not yet agreed to release it.
Even though it lays out an optimistic vision for the world, many of its recommendations will prove controversial.
"The set of policy options that could strengthen G20 outcomes would require collaborative action across the membership," the report warns.
It tells advanced countries to dramatically speed up their financial repair and reform, on the basis that a strong financial system will encourage a fast return to sustainable growth. And it says they need to make their labour markets more efficient and find ways to improve productivity.
But even if advanced countries do hunker down and eliminate their deficits over the medium term, that alone won't be enough for the world to spring back to stable prosperity, the IMF paper says.
"Alongside fiscal consolidation in the advanced economies, the case for complementary action is strong across G20 partners," it reads.
It says China needs to allow more flexibility in its exchange rate, and that emerging countries with surpluses - such as China - should strengthen social safety nets and reduce people's precautionary savings.
And major oil exporters should be spending more on infrastructure so they don't bottleneck their fast-growing economies, the report advises.
Finally, it says emerging countries with deficits should invest in infrastructure and move more people out of the informal economy - where people usually don't pay tax - to the formal economy.
All those measures put together would boost global employment by 30 million jobs, of which eight million would be in advanced countries and 21 million in emerging Asia and elsewhere, the paper predicts. And 33 million people would be lifted out of poverty, according to parallel research done by the World Bank for the G20.
If leaders ignore the advice and act as if nothing needs fixing, global growth would slow to a crawl, another 23 million jobs would be lost and 60 million people would be thrown into poverty, the report warns. Further, it says, financial crisis would probably reappear in a hurry, as debts would spiral out of control.
The G20 leaders are well aware of the paper's contents. There is a consensus that advanced countries and emerging markets have important but different jobs to do in order to restore stability to global growth. But so far, individual countries are only making "down payments" on the larger tasks facing them, Harper officials say.
The United States has put forward a medium-term fiscal plan. China has allowed its currency to be somewhat more flexible. Europe has agreed to make public the results of stress tests on its banks.
But Mr. Harper is pushing for much more. He wants to see agreement on exactly what different regions need to do for global growth. And he wants the G20 leaders to task their officials with coming up with country-specific plans in time for the next G20 summit in Korea in November.
Mr. Harper has proposed that advanced G20 countries all agree to cut their deficits in half by 2013 and get their debt load on a downward path by 2016. That's probably not enough to realize the best-case scenario put forward by the IMF, but Mr. Harper's officials stress the targets are just a minimum. Plus, sources say it would be next to impossible to get G20 support for anything more stringent.