## Statement by the Managing Director to the IMFC on the IMF’s Post-Crisis Role

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### Progress since April
- Exceptional policies in the largest economies "have pulled the global economy from the abyss."
- The Fund "has spared no effort to help the membership weather the storm."
- Actions taken:
  - Facilitated global policy coordination with cross-country assessments on short and medium-term policy challenges.
  - Deployed financial resources "in unprecedented amounts to support a broad array of countries (so far avoiding the problems that dogged many earlier crisis programs)."
  - Injected liquidity into the global economy with a $283 billion allocation of SDRs.
  - With generous support pledged by many members, "we have multiplied our potential resources and concessional lending capacity."
- Caveat: "All this is welcome, but still uncertainties remain over the outlook and it would be premature to declare victory."

### Challenges ahead
- Key challenges on the path to recovery:
  - Timing and coordination of exit from exceptional policy support.
  - Risks of anemic global demand in the years ahead "if the policy choices of major economies are not mutually supportive."
  - The still unfinished work of repairing a global architecture that allowed the crisis to break out.

### Global financial stability
- Two clear lessons from the crisis:
  - "The global financial system, for all its sophistication, is fragile and unstable."
  - "Financial instability in one country can echo around the world, halting economic growth, wreaking havoc in national financial systems, and destabilizing the currencies of members far removed from the initial shock."
- Observation on IMF mandate:
  - "The emphasis of the IMF’s formal surveillance mandate on promoting a stable system of exchange rates clearly is too narrow a reflection of what the Fund actually does and the new directions in which it is striving to move."
  - Proposal: "I therefore see merit in working to articulate a common vision of the Fund’s role in the post-crisis global architecture, one that makes explicit that macro-financial stability is an integral part of the Fund’s mandate."

### Surveillance in the post-crisis world
- Steps already taken:
  - Developed an Early Warning Exercise in collaboration with the FSB.
  - Modernized the financial sector assessment program to facilitate closer integration with regular surveillance.
  - Updated Surveillance Priorities (circulated to IMFC members).
- Further actions suggested:
  - The Fund "can do more to assess the consistency of member policies and the overall implications for the stability and health of the system."
  - Provide advice that directly supports policy action and coordination.
  - Discuss enhancing the traction of the Fund’s peer review process by:
    - Leveraging cross-country perspectives.
    - Developing new forms of engagement.
    - Faster consideration and publication of Article IV reports.

### Insurance against shocks
- Crisis lesson: need for very large liquidity buffers to deal with fast and hard-hitting capital market shocks.
- Problem: It is costly "both globally and nationally" for each country to build huge buffers.
- Role for the Fund:
  - Ensure it offers credible alternatives to national oversized buffers.
  - Progress already made: Flexible Credit Line and High Access Precautionary Arrangements.
  - Consider offering more contingent financing instruments building on these approaches.
  - Traditional programs remain critical "whenever significant adjustment is needed."
- Resource considerations:
  - Resources made available and pledged by many members "have been extremely helpful in stabilizing markets at the peak of the crisis."
  - These resources are "temporary or contingent—indeed we have yet to reach closure on expanding the New Arrangements to Borrow (NAB)."
  - Warning: "while these resources have proved sufficient so far in this crisis, they may not be enough to reassure members and markets that this would necessarily be the case in future."
  - Recommendation: "We should thus have an open-minded discussion of the right size of the Fund’s resource base and its composition."

### Engagement with low-income countries
- The global financial crisis "has hit hard our low-income country members, in spite of their limited integration with the global financial system."
- Importance: Fund should remain engaged providing policy and technical advice and, where needed, financing to help these countries face the consequences of global instability.
- Tools and needs:
  - New concessional lending instruments and "more than doubled concessional lending capacity" will allow the Fund to assist, "with due regard for debt sustainability."
  - "Timely additional support in loan and subsidy resources from members is crucial to ensure full funding of these efforts."

### Governance
- Condition for success: all members must regard the Fund as "their institution, furthering their common interest and their strategic goals."
- Required actions:
  - Rebalancing the representation of members—"an issue that goes beyond quotas."
  - Strengthening channels by which the Fund’s Governors give strategic direction and hold the Fund accountable.
- Status: "Work is underway in these areas, and we must all hope it comes to fruition soon, or the Fund’s relevance will soon be questioned again."

*INTERNATIONAL MONETARY FUND — Statement by the Managing Director to the IMFC on the IMF’s Post-Crisis Role, September 30, 2009*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2009/_093009a.pdf_