IMFSurvey Magazine: Policy
GLOBAL ECONOMIC CRISIS
Istanbul Meetings to Develop Strategy for Recovery Period
IMF Survey online
September 09, 2009
- G-20, Istanbul meetings pivotal in coordinating global recovery strategy
- Reform of financial architecture remains critical
- Global coordination of policies key to ensuring transition to post-crisis
One year after the global economy came close to meltdown, political leaders and financial officials around the world will meet at a series of high-profile events this month, ending with the IMF–World Bank Annual Meetings in Istanbul in early October. Assessing the global reaction to the crisis and what to do next will be top of their agenda.
The Annual Meetings, which will be preceded by the September 24-25 summit of 20 advanced and emerging market economies in Pittsburgh, will be pivotal in setting strategy for the aftermath of the worst crisis to hit the global economy since the Great Depression of the 1930s.
Turkey is hosting the October Meetings that will bring together finance ministers, central bankers, leading businessmen, academics, and members of civil society organizations from 186 countries to discuss how to nurture the nascent recovery now emerging.
No time to relax
While coordinated policy action by the world’s leading economies has helped pull the global economy back from the brink, IMF officials are stressing that this is no time to relax. In a speech at the Bundesbank in Berlin on September 4, IMF Managing Director Dominique Strauss-Kahn emphasized that the recovery will be sluggish and that a jobless recovery remains a risk. “I am concerned about the social and economic costs of high unemployment, which will persist even as financial markets and output stabilizes,” he said.
“While the worst has been avoided, the healing process is far from complete,” said IMF First Deputy Managing Director John Lipsky on the Fund’s Blog, iMFdirect. “Positive growth prospects for the coming year rest on the assumed implementation of a set of substantial policy actions and on private sector follow-through.”
At a meeting of finance ministers and central bank governors of the Group of Twenty (G-20) countries in London on September 4-5, policymakers recognized that “financial markets are stabilizing and the global economy is improving, but we remain cautious about the outlook for growth and jobs, and are particularly concerned about the impact on many low income countries.”
Path to recovery
The IMF says the global economy is beginning to pull out of its deepest recession since the Great Depression, but the recovery is uneven and remains dependent on policy support. Economic data from advanced and emerging market countries show that the worst of the recession is over, with rates of decline leveling off and some recording positive growth. While financial conditions in mature and emerging markets have continued to improve, the global financial system is far from returning to normal, and many markets remain highly dependent on public support.
Going forward, the pace of recovery will be sluggish. IMF officials say private demand is likely to be held back for some time by limited credit availability, household desire to rebuild balance sheets, and still-rising unemployment. Therefore the IMF is emphasizing that stimulus measures adopted to combat the crisis should be withdrawn only when the economic recovery has taken hold and unemployment is set to decline.
As IMF Chief Economist Olivier Blanchard noted in an article for the Fund’s quarterly magazine Finance & Development, coordination of policies within and between countries to adjust and rebalance will be critical, and the IMF is working on ideas to help countries figure out the best way to mount a global strategy.
The IMF helped coordinate the global response to the crisis—a response that most likely averted a far worse collapse by pressing for a coordinated stimulus. The Fund also rapidly provided financial support, with more than $165 billion in loans committed or disbursed since the beginning of the crisis. In late August, the IMF also made available an additional $250 billion worth of new Special Drawing Rights to member countries to bolster their reserves.
Together with an additional allocation on September 9, about $110 billion of the combined allocations will go to emerging market and developing countries, including over $20 billion to low-income countries. The IMF has stepped up lending and is encouraging low-income countries to expand budget deficits in response to the crisis. The Fund is also encouraging donor countries to stick to commitments to help poorer countries by expanding aid flows.
Key issues heading into the Istanbul meeting, which have the slogan Resolving Crisis, Building Recovery, include:
• Rebalancing of demand. As the economy recovers, there will be a need for a global rebalancing of demand across countries, which would require strong policy actions—including fixing the financial system in advanced economies and boosting domestic spending in emerging Asia.
• Financial system reforms are not proceeding as quickly as necessary. The IMF has called for increasing capital requirements and making them more sensitive to risk. The operational framework for macroprudential supervision remains a work in progress.
• Restoring the financial system. While financial sector policies have been instrumental in stabilizing market conditions, additional measures are needed to restore the financial system to health, including further recapitalization and dealing with problem assets. Incentives should be put in place to encourage healthy banks to progressively reduce their dependence on public support.
• Caution in unwinding the stimulus. The key challenge is to map a course between unwinding public interventions too early—which would jeopardize progress in securing financial stability and economic recovery—and withdrawing them too late, which would distort private incentives and create new risks.
• Spotting risks. Regulation and supervision must do a better job of looking out for risks across industries and between countries, and provide a complete picture of risks.
The IMF will continue its surveillance of the international financial system, raising flags about potential problems and presenting policymakers with options for how best to respond. The Fund also will continue to provide technical assistance to countries as they design and implement reforms to improve regulation of their financial sectors.
Istanbul prepared to host thousands
This will be the second time that Turkey, a key member of the G-20 industrialized and emerging market countries, hosts the meetings—the first time was in 1955.
In addition to policy discussions, the meetings are also a forum for policymakers to meet with civil society organizations and the private sector. The IMF has held informal meetings with these groups and will continue to do so as officials from the Fund travel to Turkey over the next few weeks.
A program of seminars is planned in the days immediately preceding the annual meetings, which will cover a wide range of topics. Key questions include, how can policies sustain recovery and create jobs, what’s next for global finance, and how can the poor be protected. The opening session on October 3 will be televised as a BBC World Debate. Speakers at the different sessions include Ali Babacan, Nancy Birdsall, Paul Collier, Niall Ferguson, Stanley Fischer, Ngozi Okonjo-Iweala, Raghuram Rajan, Guler Sabanci, George Soros, Joseph Stiglitz, Dominique Strauss-Kahn, and Martin Wolf.
The official event website, www.bankfundmeetings.org, provides information about the meetings, including web pages on how to attend and a schedule of high-profile media events. And for a glimpse of the IMF at work as it prepares for the Istanbul meetings, see the “Road to Istanbul” website, which will provide updates on the IMF and world economy in the lead up to Istanbul. A large amount of information about the meetings and the IMF is also available on the web in Turkish.
The host country is expecting some 13,000 participants to attend the meetings over the course of several days. The IMF’s policy advisory group, the International Monetary and Financial Committee will meet on October 4, and the Development Committee will meet on October 5. These meetings are an opportunity for the Ministers of Finance and Central Banks Governors from all countries to get together to discuss global economic issues and give guidance to the IMF.
The Annual Meetings follow on October 6 and 7.
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