IMFSurvey Magazine: In the News
Spring meetings preview
IMF to Review World Outlook, Set Seal on Reform Plans
By IMF Survey online
April 7, 2008
- IMF to release latest forecast for world economy as U.S. growth slows
- Policy panel set to review IMF work on sovereign funds, global imbalances
- Management to report on reform of IMF representation, finances
When the world's top financial officials gather in Washington April 12-13 for the IMF-World Bank Spring Meetings, they will focus on worries about the outlook for the global economy, triggered by a slowdown in the United States, and are expected to endorse reform plans for the IMF.
The twin international financial institutions meet at a time of heightened concerns about the repercussions of the subprime mortgage crisis and subsequent market turmoil on the stability of the global economy and the international financial system.
"The forecasts we're going to release in a few days show things are not really improving,'' said IMF Managing Director Dominique Strauss-Kahn at a conference in Watford, England on April 5. "The downside risks identified six months ago have materialized.''
The IMF has called for "decisive policy action" to strengthen the global financial system, buffeted by fallout from the subprime crisis, noting that authorities worldwide must also "think the unthinkable" so that they can better anticipate and react to potential global economic risks. "By now, there is little doubt that risks of further escalation of this crisis are rising and decisive policy action will be required to put the global financial system and global economy on a firmer footing," said John Lipsky, IMF First Deputy Managing Director, in early March.
New global forecast
The IMF will unveil its latest forecast for the global economy in its new World Economic Outlook, released on April 9. Apart from recession fears, economists are also worried about the rising pace of inflation in some countries amid continuing high prices for many commodities. New research released by the IMF on April 3 shows that housing markets are turning down in several advanced economies.
"The prospects for global economic growth have slowed down since January," IMF chief economist Simon Johnson told an April 3 press briefing, "and at the same time commodity prices have increased. That's an unusual combination. Usually you think that with the global economy slowing down, commodity prices would come down—with some lag."
On April 8 the IMF will publish its assessment of global capital markets and the subprime meltdown, along with policy suggestions, in its Global Financial Stability Report. To better understand the complex interactions between financial markets and the real economy, the IMF has ramped up its work, both in-house and with its member countries and other international institutions, to analyze the causes of the recent crisis, its spillovers to the world economy, and the possible policy responses.
The Fund's analysis will feed into ongoing work by a number of international and national bodies, including the Financial Stability Forum, to identify information gaps and make policy recommendations, including on risk management practices, valuation, financial regulation, and supervisory practice.
The IMF's work will be reviewed on April 12 during a meeting of the International Monetary and Financial Committee (IMFC), a 24-member committee of the IMF's Board of Governors that provides policy advice and direction to the 185-member institution. The committee is also expected to provide backing to the IMF's proposed work agenda on sovereign wealth funds, which was recently endorsed by the IMF's Executive Board, and review progress in reducing imbalances in the global economy.
On low-income country issues, members are expected to welcome the recent moves by the IMF and the World Bank to support Liberia, recovering after a ruinous period of civil war, with debt relief and new financing. The Development Committee, which advises the World Bank and the IMF on development and aid issues, will meet on April 13. Among other items, this meeting will review the impact of the recent increase in food prices on low income developing countries.
The IMF Managing Director will report progress on a number of fronts to reform the IMF. Key issues include reform of country representation and the Fund's income and expenditure model.
Quotas and voice. In a key step toward reforming the institution, the Executive Board on March 28 backed a resolution that would achieve a significant shift in the representation of dynamic economies, many of which are emerging market countries, and give poorer countries a greater say in running the IMF. The resolution must be approved by the IMF's Board of Governors, who will vote in the coming weeks, with an 85 percent majority of total voting power.
Acknowledging the underlying shift taking place in the world economy, with emerging market economies playing an increasingly important role, the IMF reform process aims to better align quota, which largely determines a country's voting power, in the Fund with member countries' weight and role in the global economy. Equally important, the reform aims to enhance the participation and voice of low-income countries.
The Board proposal completes a two-year reform program approved at the 2006 Annual Meetings in Singapore, when initial ad hoc increases in quota shares were provided to China, Korea, Mexico, and Turkey. These will now be followed by ad hoc increases for 54 countries, with dynamic emerging markets receiving the largest percentage increases. Moreover, the Board proposal envisages a regular review of quotas, every five years, to continue the dynamic process of aligning quota shares with the relative weights of countries in the global economy.
The proposal also envisages an increase in the voting power of low income countries (through a tripling of the basic votes that all countries hold in equal amounts) and adds senior officials to the offices of the Executive Directors representing large numbers of African member countries.
Strauss-Kahn told a March 28 news conference after the Board vote that the agreement will help the Fund to adjust its structures to the dynamic and changing realities of the global economy, and added it was only a first step. "We are creating a more flexible system for quota and voice, which involves further changes over time as the relative positions of countries in the world economy evolve. The decisions taken today reflect the membership's commitment to the Fund's future by enhancing its effectiveness, credibility, and legitimacy," Strauss-Kahn said.
Income and expenditure. On April 7, the IMF Executive Board endorsed a new package of measures to set the IMF's finances on a sound long-term footing, in a move designed to end the institution's overreliance on income from lending operations to finance its work. Managing Director Strauss-Kahn applauded the decisions by the Executive Board to propose a new and sustainable income and expenditure framework for the Fund, calling it "a landmark agreement that will put the institution on solid financial footing and modernize the IMF's structure and operations."
Part of the package is the creation of an endowment with the profits from the limited sale of 403.3 metric tons of the IMF's gold holdings. If approved, gold sales would be conducted in a transparent manner with strong safeguards to ensure that they do not add to official sales and avoid any risk of market disruption.
The sale of gold requires approval by IMF members representing 85 percent of the voting power—although approval by the U.S. Congress is needed before the U.S. Executive Director can vote in favor of gold sales. On this matter, U.S. Treasury Under Secretary David H. McCormick, speaking at the Peterson Institute for International Economics in Washington on February 25, said that "the United States will help ensure that the IMF has adequate resources to fulfill its vital global mission by seeking authority from Congress for a limited sale of IMF gold."
"We believe an endowment, financed through a limited gold sale, combined with continued budget discipline, will provide the basis for sound and sustainable IMF finances," McCormick said.
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