## Statement by the Managing Director to the International Monetary and Financial Committee on the Fund’s Policy Agenda — October 6, 2010

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### Context
- Global recovery continues to move ahead but remains fragile and uneven, with continued high unemployment.
- Many countries emerging from the crisis face high debt burdens, low growth, and still fragile financial sectors.
- Economic activity in many emerging market countries has picked up, attracting large capital inflows that challenge economic policy.
- Important steps taken to make financial sectors safer, but an unfinished agenda remains substantial, particularly for cross-border finance and macro-prudential regulation.
- Continued policy cooperation and collaboration are required given remaining vulnerabilities and challenges.

### The IMF’s role
- Reforms of the past 18 months aim to respond to weaknesses exposed by the crisis and position the Fund for new-century challenges.
- Surveillance is evolving to better account for extensive linkages between countries and between the real and financial sectors.
- Reformed lending instruments now provide members with larger-scale and faster-disbursing resources and insurance against shocks.
- The Fund is revisiting fundamental aspects of the functioning of the international monetary system.
- Much has been accomplished, but more remains to be done for universal acceptance of the Fund as an effective and impartial guardian of global stability.

### Quotas and governance
- Progress on quotas and governance is increasingly urgent.
- Since the spring, extensive discussions have taken place on quotas and governance issues such as ministerial engagement and composition and size of the Executive Board.
- The composition and size of the Executive Board face an even tighter deadline for closure.
- Agreement on components of overall governance reforms and precise modalities has not yet been reached.
- Time is short; the world is watching—this is characterized as a clear test of willingness to adapt to a changing world.

### Surveillance
- The crisis highlighted shortcomings in identifying risks to global economic stability.
- The Fund is modernizing its surveillance toolkit, strengthening analytical underpinnings of the new early warning exercise to capture cross-country spillovers and macro-financial linkages, and issues of sovereign debt sustainability and fiscal space.
- Countries with systemically-important financial sectors will be subject to financial sector stability assessments under the FSAP every five years as part of bilateral surveillance.
- Experimental “spillover analysis” will examine cross-border implications of policies of the five most systemic economies (China, Euro Area, Japan, U.K., U.S.) based on policy discussions with originating and affected countries.
- Continued experimentation with cross-country/thematic surveillance reports and efforts to deepen understanding of financial interconnectedness, including addressing data gaps.
- Next year’s Triennial Review of Surveillance will be an opportunity to take stock of the legal and policy framework for all surveillance activities.

### Lending
- Lending reforms acknowledge the importance of large-scale and predictable support to countries vulnerable to crises.
- Building on lending reforms of early-2009, the Flexible Credit Line (FCL) was made more flexible by doubling the duration of the arrangement to two years and removing the implicit cap on access.
- A new Precautionary Credit Line was approved to provide effective crisis prevention to members with sound fundamentals and policy frameworks but also moderate vulnerabilities that preclude FCL eligibility.
- The Fund must explore enhanced liquidity provision in times of systemic stress and closer cooperation with regional financing arrangements.
- Ensuring the Fund has necessary resources includes agreeing on a substantial quota increase.

### International Monetary System (IMS)
- The Fund is responsible for ensuring effective operation of the IMS.
- Tensions and risks have been building in IMS operations, manifesting in large official reserve accumulation, persistent global imbalances, and capital flow and exchange rate volatility.
- Work is underway on reserve adequacy, capital flows, and the potential for an expanded role of Special Drawing Rights.
- These efforts, combined with other mandate reforms, are expected to make positive contributions to IMS stability going forward.

### Low-Income Countries
- The Fund is committed to assisting LICs in an uncertain global economic environment.
- Since the Spring Meetings, the Fund delivered on its commitment to establish a Post-Catastrophe Debt Relief Trust.
- Attention ahead will focus on exiting from crisis policies, rebuilding policy buffers, and speeding progress to reduce poverty.
- Efforts are being stepped up to mobilize contributions from members to complete the financing package in support of the Fund’s concessional facilities.
- The Fund looks forward to developing a new vulnerability exercise for LICs to parallel efforts for advanced and emerging market economies, working with development partners to assist LICs in implementing sound strategies to scale-up critical infrastructure investment, and enhancing support for fragile states.

### Looking ahead
- Considerable progress has been made reforming the Fund to reflect lessons learned from the crisis and improve machinery for global cooperation.
- The Managing Director urged avoiding a return to a “business as usual” mentality for the IMF.
- A year-long reflection on the Fund’s mandate and governance has been a catalyst for new thinking intended to deliver on the membership’s expectations.
- The Fund is moving in the right direction but is by no means done.

*INTERNATIONAL MONETARY FUND — Statement by the Managing Director to the International Monetary and Financial Committee on the Fund’s Policy Agenda, October 6, 2010*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_100110c.pdf_