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IMF needs to start thinking outside the box

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Nearly five years after the collapse of Lehman Brothers, almost all rich countries are still in an economic funk. Wise advice is desperately needed. That's an opportunity for the International Monetary Fund, but requires it to develop more creative ideas on growth.

The problem is clear. The international lender forecasts GDP in the world's wealthiest nations will increase by just 1.2 per cent this year, half the pace of the mid-2000s. Since those economies have never fully recovered from the post-Lehman recession, the current rate looks particularly pitiful.

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Policy-wise, nothing seems to be paying off. Not fiscal austerity, not fiscal stimulus, not easy money and not structural reforms. And if the IMF's spring gathering last week is anything to go by, the fund, like other mainstream economic experts, is stuck with little to suggest but more of the same. Japan, for example, is set for a mega-push on all these policies. The IMF is optimistic – if expected GDP growth of 1.6 per cent in 2013 qualifies as optimistic.

The overall mood, though, was glum. To make things a little worse, the latest GDP figures from China – the main engine of global growth – were disappointing. Even so, the IMF has mostly suggested only policy tweaks: less belt-tightening in the U.K. and less fiscal largesse in Japan. Even in the unlikely event that member nations follow these counsels, such adjustments probably won't make a big difference.

It's time for the IMF to look elsewhere. One fruitful area of study could be the impact of a deleveraging process – the balance sheet recession, as the Nomura Research Institute's Richard Koo calls it. He reckons only time, potentially a decade or more, can restore the appetite for borrowing that might boost growth. A deep dive into demographics might reveal other headwinds. Aging and discouraged consumers may simply not respond much to policy changes, however extreme or ingenious.

The IMF isn't any more lost than anyone else, but can look foolish when it pretends to know more than the countries it advises. With many experts flummoxed, producing real insight from broader analyzes – and avoiding so many recommendations – would make the fund a more valuable resource.

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