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Christine Lagarde and David Lipton on Global Finance in 2016

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With recession in Brazil and Russia as well as slowed growth in China, some economists have wondered whether the financial crisis that started in the U.S. in 2008 and resurfaced in Europe in 2011 is about to hit emerging-market economies in 2016. The question matters because emerging-market economies have been a vital engine of growth around the world over the past 15 years.

The reality is likely to be less dramatic but more complex. Major global events—like declining commodity prices, a stronger dollar and the normalization of U.S. interest rates—will affect emerging markets differently, so we are likely to see a wide range of economic performance. What makes this all the more complex is that many countries are facing not only near-term economic challenges but also long-term structural growth decline. International Monetary Fund (IMF) forecasts imply that emerging and developing countries are converging with advanced-economy living standards at less than two-thirds the pace we expected a decade ago. Some key countries are not on track to converge at all. That is at odds with the promise of globalization, which should generate faster convergence through increased connectivity, greater opportunities for technology transfer, more mobile and available capital, declining poverty and better education.

What is to be done now? Clearly each country must get its own house in order, and in the near term much of the needed housekeeping could be painful as countries reduce existing imbalances and adjust to low commodity prices and lost competitiveness on top of a slowing economic cycle. But decisive adjustments, along with steps that bolster the supply side of the economy—well-functioning and inclusive labor markets, openness to trade and investment, support for innovation—are needed to build the base for faster growth and convergence.

It is also becoming clear that the international community needs to reexamine what changes can be made to the global system itself, to mitigate the cyclical slowdown, reduce market volatility and tackle the widespread decline in potential growth.

Let’s consider upgrades in three broad policy areas: first, to prevent capital from flowing “uphill” from poorer to richer countries, there could be greater international efforts to provide a more stable system of capital flows with better collective insurance. With stronger facilities that provide contingent funding, like those we have at the IMF, poorer countries would have less need to insure themselves against crisis by placing funds in international reserves rather than investing at home.

To make capital flows more supportive of investment and growth, there could be efforts to stem volatile, often disruptive short-term flows and to encourage more equity rather than debt-creating investment. Financial institutions may be promoting too much short-term capital flow while tax systems are encouraging too much debt.

And third, to reverse the slowing of emerging-market growth, there could be a greater sharing of technology. We urge a rethinking of the balance between intellectual-property protection and technology dissemination, as well as renewed efforts to remove obstacles to the kind of foreign direct investment that encourages knowledge transfer from rich nations to poorer ones.

Reinvigorating growth in emerging markets is important for many reasons, not the least to better tackle global challenges such as inequality and climate change. Individual countries will need to maintain stability and promote growth on their own, but the global system itself must be retooled to better support investment and growth.

Lagarde is the managing director of the IMF; Lipton is the first deputy managing director of the IMF

This appears in the December 28, 2015 issue of TIME.

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