April is the best month to visit Washington, and this weekend marks both the peak blooming of its beautiful cherry blossom trees and the World Bank/IMF spring meetings.
On the World Bank side, the tone was set by an article in the Financial Times debating the restructuring of the bank. The basic reason for restructuring was the cut in resources, necessary because, in 2010 and 2012, the bank made operating losses, although it recovered last year.
Just to show how the world has changed, the total resources of the IMF and World Bank put together (roughly US$800 billion) is today smaller than the balance sheet of the China Development Bank, which amounted to US$1.2 trillion at the end of 2013.
Most observers were keen to analyse the "World Economic Outlook 2014" presented by International Monetary Fund chief economist Olivier Blanchard. His view was that advanced countries are on a broad recovery path, and a major task ahead is the normalisation of monetary policy (interpretation: withdrawal of quantitative easing).
Global growth is expected to strengthen moderately to 3.6 per cent this year and then rise to 3.9 per cent in 2015. One major driver has been the US, which grew at 3.25 per cent in the second half of 2013, much stronger than expected, on the back of stronger exports and domestic housing recovery.
Europe is expected to bottom out, while the Japanese recovery will depend on the implementation of Abenomics in pushing domestic demand in the face of tax reforms.
The news is perhaps not as good for emerging market economies, which will face tighter financial conditions and less forgiving investors. Yet, the IMF thinks they will still see modest increases in GDP growth from 4.7 per cent last year to 4.9 per cent in 2014 and 5.3 per cent in 2015.
The forecast for China is that growth will remain broadly unchanged at about 7.5 per cent in 2014-15, roughly the same as official Chinese forecasts. The IMF is more cautious in saying that its projection is "predicated on the assumption that the authorities gradually rein in rapid credit growth and make progress in implementing their reform blueprint so as to put the economy on a more balanced and sustainable growth path".
A companion report by the IMF is the latest "Global Financial Stability Report". Its key message is that global financial reform is incomplete, with the financial system remaining at risk. The fund worries about rising geopolitical risks, and the macroeconomic impact of increased income inequality, which is an important item in many countries' social agenda.
What is truly interesting at these meetings is the raft of titbits and insights on what is really going on. In addition to the inequality question, there was also greater awareness of the impact of climate change and global warming on the future of global economies.
At the Hyman P. Minsky Conference on "Stabilising Financial Systems for Growth and Full Employment", a US congressman remarked that a reason financial regulation is difficult is that there are 3,000 lobbyists operating in Washington, roughly six per congressman.
Another speaker drew my attention to a remarkable farewell speech by a retired law enforcement officer from the US Securities and Exchange Commission, revealing the frustrations of law enforcement staff in what is widely regarded as the benchmark agency in securities markets.
For example, he was concerned the agency was dishing out parking tickets for minor offences but being soft on top management, who he called the penthouse people.
He asked a question relevant to Asia: "Are we so sure that our own domestic corporations and audit firms are law-abiding that we can spend vast quantities of staff time and taxpayer money worrying about firms in other countries because a handful of ADRs are sold on US markets?" ADRs are American depositary receipts of Asian or non-US shares quoted and traded in US exchanges.
Deepening financial markets in emerging economies cannot be decoupled from the practice and experience of more mature markets in the US and Europe. These advanced markets are essentially the rule makers and standard setters in global financial markets. If they have difficulty enforcing their own laws, emerging markets will have to step up to the mark and ensure that they can practise what they preach.
People who preach about the wonders of the marketplace often prefer market entry over market exit. The job of law enforcement officers in market economies is to enforce the laws strictly and fairly for normal market operations and to ensure that those who break the law and are inefficient or insolvent exit the markets. This is a thankless but necessary task.
Spring is always welcome, but before the next spring, we must have winter. Markets that do not enforce exits are not markets.
Andrew Sheng is distinguished fellow of the Fung Global Institute