Four challenges for 40 years

The IMF and the OECD both emerged from a common postwar vision of the future of the international economy. Both have grappled with difficult issues, adapting themselves to face the enormous changes in the world economy since their creation. Both will surely need to grapple with enormous changes still to come. 

Kenneth Rogoff, Economic Counsellor and Director of the Research Department, International Monetary Fund, offers some thoughts on four issues of mutual interest that just might fill the pages of OECD Observer over its next 40 years.

1. The IMF has become known as a champion of economic stability and modest deficits, yet there is no paradox in saying the real challenge for the future is to find ways to sustain larger current-account deficits. Industrialised countries will need goods and services for a ballooning number of retirees over the next few decades. Who will provide them? More immigrants from the developing world would help. But so would large current-account surpluses vis-à-vis the developing world, which would allow industrial countries to save abroad for the decades after 2030, when they will want to run deficits of 3-4% of GDP. Right now, the system cannot easily tolerate the giant debt accumulation that would allow countries to save for that day.

We have to make the global economy work better. Expanding trade would help support deeper capital-market integration. Better procedures to govern international lending contracts are also essential, as the IMF has recently emphasised.

2. Since the breakdown of the Bretton Woods system of fixed exchange rates in 1973, the world has seen a panoply of different exchange arrangements. As many as 15 distinct systems have been tried, across the spectrum from fixed to floating, according to a recent IMF study. What have we learned from this over the past 30 years?

First of all, with freely flowing capital, maintaining a fixed exchange rate is akin to a game of Russian roulette in which survival is a matter of luck. Second, countries that have tried to sustain rigidly fixed rates indefinitely via capital controls have generally seen the effectiveness of this approach eroded over time. Indeed, a close look at many so-called fixed exchange rate regimes reveals dual exchange rates, parallel markets, and other forms of “back-door” floating. Third, it is often very hard to explain floating rates – front door or back door – in terms of underlying macroeconomic fundamentals like interest rates, inflation rates and growth.

So where do we go from here? Since 1945, the number of currencies in the world has doubled along with the number of countries. Perhaps the arrival of the euro marks a turning point, and over the coming decades this number will plummet, ending perhaps in two or three core currencies, with a scattered periphery of floaters. Getting there, and managing macroeconomic policy with less exchange-rate flexibility, is one of the major political and economic challenges of the 21st century.

3. Since its creation, OECD countries have largely abandoned capital controls, and for good reason. As economies become more open and develop more sophisticated financial sectors, capital controls become more and more difficult to enforce. If capital controls are too heavy, the need to comply with complex regulations hampers trade. And in countries with governance problems, capital controls can be a particularly insidious source of corruption.

Yet it is important not to be dogmatic. Experience has shown that there are real risks in lifting long-standing exchange controls before the internal regulatory structure can handle the resulting capital flows. And even in countries that have largely dispensed with capital controls as a regular mechanism, there may still be a role for limited and temporary controls, particularly on inflows, but in some cases on outflows. Finding the right pace at which to dismantle clearly pernicious capital controls will not be easy, however, and achieving the correct balance should be high on our research and policy agendas.

4. Making economic policy in Africa is no job for the faint of heart. Many countries have suffered from civil conflict. This problem has diminished somewhat but drought remains an issue – and a far worse one if civil conflict is simultaneously present. Factor in the HIV/AIDS crisis, which in addition to its tragic human toll is literally decimating the most economically productive members of many African societies. Add to that the unpredictability of international aid flows, which is topped only by the extraordinary price volatility in world markets of their primary exports. How can one possibly stabilise such economies?

In practice, policymakers often try to shield the economies from extreme volatility by imposing tight controls across the economy. Unfortunately, such controls not only block the price signals that help the economy react to changing circumstances, but also feed inefficiency and corruption. That many parts of Africa have made great progress in lowering inflation, liberalising markets and resuming growth is a testament to the perseverance of the Africans themselves. Still, the challenges remain, and we will need to find new approaches in the years ahead if the UN’s Millennium Development Goals are to become anything more than a dream for Africa.

The IMF was established not long before the OECD to address problems like these. Finding approaches that resolve them – and the many more immediate dilemmas facing our 184 member countries – constitutes the heart of the IMF’s work programme. I applaud the work of the OECD Observer in shedding light on these complex topics and bringing them to the attention of a broader circle.


Rogoff, K., “Managing the world economy”, The Economist, 3 August, 2002, Available online (see link below)

©OECD Observer No 235, December 2002

Economic data


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • “Nizip” refugee camp visit
    July 2016: OECD Secretary-General Angel Gurría visits the “Nizip” refugee camp, situated between Gaziantep and the Turkish-Syrian border, accompanied by Turkey’s Deputy Prime Minister Mehmet Şimşek. The camp accommodates a small number of the 2.75 million Syrians currently registered in Turkey, mostly outside the camps. In his tour of the camp, Mr Gurría visits a school, speaks with refugees and gives a short interview.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • Queen Maxima of the Netherlands gives a speech next to Mexico's President Enrique Pena Nieto (not pictured) during the International Forum of Financial Inclusion at the National Palace in Mexico City, Mexico June 21, 2016.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.

  • Message from the International Space Station to COP21

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa.
  • Pole to Paris Project
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .

Most Popular Articles


What issue are you most concerned about in 2016?

Euro crisis
International conflict
Global warming

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016