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Press Release: IMF Managing Director Dominique Strauss-Kahn Sets Out Renewed Vision for the IMF in the Post-Crisis World
February 26, 2010
In an address at the Annual Meeting of the Bretton Woods Committee in Washington, DC, International Monetary Fund Managing Director Dominique Strauss-Kahn set out today the key elements of a renewed vision for what he called “an IMF for the 21st century.”
The Managing Director explained it was a “a vision that responds to the challenges our 186 member countries face in the post-crisis era, that will enable the Fund to retool itself to be more effective, and yet that remains firmly grounded in the core mandate given to the IMF by its founders.” He added that this “renewed mandate” should cover the full range of macroeconomic and financial sector policies that bear on global stability in the modern world and strengthen the Fund’s role as “guardian of systemic stability.”
Mr. Strauss-Kahn presented three key priorities for updating the Fund’s mandate:
Improving Crisis Prevention. He said the IMF could improve its oversight of systemic and financial risks. “We are floating the idea of a new multilateral surveillance procedure”, he said, to assess the systemic effects of a country’s policies in a fundamentally different way. Such a procedure would complement the Fund’s country-level surveillance and the efforts of the G-20, which had recently launched the Mutual Assessment Process. Mr. Strauss-Kahn also saw a role for the IMF to help address a broader range of international policy challenges that would require an “enhanced multilateral approach to find lasting solutions.”
On financial risk, Mr. Strauss-Kahn focused on doing a better job of “tracing how risk percolates through the system.” This would include strengthened monitoring of the several dozen large, complex financial institutions that make up the basic “plumbing” of international finance. Turning to capital account liberalization, he emphasized the Fund’s “pragmatic position, including on the issue of capital controls.
Bolstering Crisis Response. Mr. Strauss-Kahn emphasized that, in a system-wide crisis, IMF lending would need to be of a speed, coverage and size far beyond previous assumptions. “We are currently exploring various options, including for short-term, multi-country credit lines.” The Fund is also looking into ways to make its insurance product, the Flexible Credit Line, more attractive, and also how to collaborate with regional reserve pools—noting the example of the “positive and stabilizing” role played by EU lending in parallel with IMF programs.
On the question of support for low-income countries, Mr. Strauss-Kahn highlighted the significant steps taken by the IMF over the past year—including revamping its lending and streamlining conditionality. “But we could do even more,” he said. This might include expanding the Fund’s role as a “provider of insurance against global volatility or other shocks, including from the effects of climate change”. Innovative financing solutions for countries facing fragilities and security issues should also be considered.
Strengthening the International Monetary System. Despite episodic problems, Mr. Strauss-Kahn stressed that the current international monetary system had “demonstrated resilience during the crisis,” with the U.S. dollar playing the role of a “safe haven” asset. Going forward, the challenge would be to find ways to “limit the tension arising from the high demand for precautionary reserves on the one hand, and the narrow supply of reserves on the other.” Here, the Fund could play a role by providing liquidity.
On the longer-term question of whether a new globally-issued reserve asset was needed, the Managing Director stated that “it is intellectually healthy to explore these kinds of ideas now—with a view to what the global system might need at some time in the future.”
Mr. Strauss-Kahn also emphasized that a renewed mandate for the IMF would lack legitimacy unless the Fund can tackle ”long-standing grievances” with its governance. While welcoming the G-20’s firm backing for IMF governance reform, he noted that ”translating these commitments into reality is not always easy.” For example, the IMF’s 2008 quota and voice reform is still not effective. While it was approved by nearly all the Fund’s Governors back in April 2008, so far only 64 of the IMF’s 186 member countries—representing about 70 percent of the required 85 percent voting power—have passed the necessary legislation to make the reform effective. “To achieve lasting governance reform,” he said, ”the Fund needs the active support of its entire membership.”
The Managing Director also spoke to the importance of multilateralism. “If this crisis taught us anything, it is that the world needs even more multilateralism today than it did when the Bretton Woods institutions were founded in 1944.” Noting the “unprecedented” international policy collaboration that had taken place during the crisis, he said that, the 21st century will demand “more of this kind of collaboration not less. More multilateralism, not less. More IMF, not less.”
For further information on the Fund’s mandate see:
The Fund’s Mandate—An Overview; IMF Policy Paper; January 22, 2010 http://www.imf.org/external/np/pp/eng/2010/012210a.pdf
The Fund’s Mandate—The Legal Framework; IMF Policy Paper; February 22, 2010 http://www.imf.org/external/np/pp/eng/2010/022210.pdf
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