IMFSurvey Magazine: Policy
IMF WORK PROGRAM
Financial Crisis Shapes IMF Work Priorities
IMF Survey online
December 18, 2008
- New work program reflects ongoing crisis, longer-term priorities
- IMF to cooperate closely with G-20 on proposals for new financial architecture
- Stronger ties with Financial Stability Forum on vulnerabilities, early warnings
The IMF's Executive Board has agreed on the Fund's priorities for the period leading up to the IMF-World Bank Spring Meetings in April 2009, putting the focus on tackling the fallout from the global financial crisis and the longer-term challenges it has exposed.
This work program is in line with requests from the International Monetary and Financial Committee (known as the IMFC, the IMF's policy-steering committee) and the Group of Twenty leading industrialized and emerging market countries (G-20).
A main focus of the IMF's efforts will be to ensure continued financial support and policy advice for the growing number of countries that are buckling under the strains of the financial crisis. But the IMF will also devote significant resources to understanding the causes of the financial crisis and identifying reforms needed to improve the international financial architecture.
The discussion of the IMF's short-term priorities takes place against the backdrop of a worsening economy. In its latest assessment of the global economy, the IMF cut its forecast for global growth by ¾ percentage point to 2.2 percent for 2009. A growing number of countries are seeking financial assistance from the Fund, and new loans worth a total of US$40 billion have been approved in record time for Ukraine, Iceland, Pakistan, and Hungary.
IMF as crisis responder
The IMFC sets the overall direction for the IMF's work. But the IMF's work program, agreed by its Board on November 24, has also been aligned with the outcome of the November 15 meeting of the G-20.
A communiqué issued by the G-20 called for both immediate and longer-term actions to stabilize the financial system, stimulate domestic demand, help emerging and developing economies battered by the crisis, and strengthen the regulatory framework. The G-20 also said it would hold a second summit by April 30, 2009—probably in London.
"The International Monetary and Financial Committee and the G-20 leaders have emphasized the central role of the Fund as a crisis responder and a developer of ideas," IMF Managing Director Dominique Strauss-Kahn said. "We will take this mandate forward to help restore global financial stability and stimulate sustained economic growth."
Strauss-Kahn stressed that the IMF will be working closely with other international institutions. One such close partner will be the Financial Stability Forum (FSF), an organization based in Switzerland that brings together senior representatives of national financial authorities from 12 mainly developed countries and representatives from various financial institutions and regulatory bodies. The FSF has said it plans to expand its membership to also include emerging market countries. On November 13, the IMF and the FSF published a joint letter saying they intend to step up cooperation in key areas such as early warning exercises and improving supervision and regulation of the financial sector.
Scope for innovation
A priority for the IMF in the coming months will be to ensure that it continues to provide fast assistance to emerging market and developing countries hit by the crisis, with conditionality tailored to the priorities of addressing the crisis while ensuring that vulnerable sectors of the population are adequately protected.
As the crisis spread, the IMF quickly established a new Short-Term Liquidity Facility (SLF) to help countries with strong fundamentals and domestic policies cope with short-term liquidity pressures arising from external market developments. The IMF Board now intends to examine other elements of IMF lending, such as the scope for innovation and further streamlining of both instruments and conditionality. It will also review access limits, maturities and charges, and will look into whether the IMF will need to supplement its resources.
Causes of the crisis
The massive scale of the crisis and its costs took many people by surprise. In October 2008, the IMFC asked the IMF to take the lead in analyzing the complex chain of causes and effects that led the world economy into what may turn out to be worst recession since the Great Depression. The G-20 reaffirmed this call. Work will focus on:
Drawing lessons and recommending responses. The IMF is taking the lead in providing a comprehensive analysis of the causes of the crisis and lessons learned for macroeconomic policy and regulation. Informed by this analysis, the IMF is developing recommendations for policy responses, both on how to overcome the immediate crisis and address longer term challenges.
Improving early warning systems. The IMF is intensifying work on early warnings and the monitoring of systemic and country vulnerabilities. "In general, this is a complex task that requires bringing together expertise and information that, by its nature, tends to be scattered," First Deputy Managing Director John Lipsky said in a December 17 speech. "Coordinating the analysis and formulating the response is key. The IMF has recently stepped up its work in this area, redoubling its analysis of financial markets, macro-financial linkages, and spillovers across countries. The aim is to strengthen our early warning systems and we are working in cooperation with the Financial Stability Forum, among other organizations. Such exercises should encourage the early adoption of preventive or compensating policy responses, either in macroeconomic or regulatory areas."
Assessing impact on low-income countries. The IMF will monitor closely the impact on low-income countries of overlapping shocks caused by the global financial crisis and strained food and fuel prices. The Fund stands ready to support its low-income members with technical and financial assistance and will be examining whether it needs to adapt its policy advice and loans to better meet their needs.
Financial architecture overhaul
With its near universal membership, core macro-financial expertise, and mandate to promote international cooperation, the IMF is prepared to participate fully in the efforts to overhaul the rules governing financial markets. Indeed, it has a unique responsibility to provide the machinery for consultation and collaboration and to help its members embed these efforts into a unified framework for safeguarding global macroeconomic and financial stability.
The IMF will contribute to the working groups set up by the G-20 for developing proposals on a range of issues, including how to enhance sound regulation and strengthening transparency, reinforce international cooperation and promote the integrity of financial markets, and reform international financial institutions.
Work will also continue on advancing the surveillance priorities for 2008-2011 endorsed by the IMFC in October 2008. In particular, IMF staff will analyze the implications of the de-leveraging process for credit creation and linkages across countries, as well as conditions for economic recovery from financial stress.
A special review of the stability of the exchange rate system will also be undertaken, and a planned review of the Financial Sector Assessment Program (run jointly with the World Bank) will look into the need to adapt this tool, drawing on lessons from the financial crisis and ideas to improve the international financial architecture.
While the IMF's priorities are focused on the global financial crisis, work on governance reform and modernization continues. Strauss-Kahn encouraged member countries to finalize the domestic legislation that is needed to implement the quota and voice reforms and the new income model that was agreed in April 2008. Finally, the Committee on IMF Governance Reform headed by South Africa's finance minister Trevor Manuel is expected to report by April 2009.
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