## Statement by the Managing Director to the International Monetary and Financial Committee on the Fund’s Policy Agenda — April 13, 2011

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### Context
- Global recovery has "gathered strength" and financial conditions have "kept improving".
- Members face multiple challenges: slow growth, high unemployment, and fiscal and financial vulnerabilities in many advanced economies; rapid credit growth and overheating pressures in some emerging markets.
- Rising food and energy prices have returned, "further constraining policies".
- Global imbalances show no sign of abating; volatility in cross border financial flows and exchange rates remains high.
- Recent unpredictable shocks have further challenged the outlook: the tragic events in Japan and developments across the Middle East and North Africa.
- Lesson highlighted: the quality of growth—especially its ability to combat unacceptably high unemployment and inequality—is critical to the sustainability of growth.

### Role of the IMF
- Prime mandate: cooperation to prevent instability and crises, and to contain their costs when they occur.
- Need to assess whether reforms to surveillance and lending tools undertaken after the crisis "go far enough".
- Three inescapable aspects identified:
  - The great extent to which policies in major economies, whether advanced or emerging, impact each other and the entire system.
  - The importance and complexity of financial links connecting economies to each other, particularly as compared to real links; cross border financial flows have a major influence on the functioning of the IMS, making financial regulation relevant to the IMS as well.
  - The essential role of access to international liquidity in times of systemic crises, to prevent localized stress from spreading and liquidity crises turning into solvency ones with much greater costs.

### Surveillance and financial flows
- Immediate objective: improve the way cross border linkages are dealt with.
- Progress since the crisis:
  - Strengthened ability to identify potential vulnerabilities via the early warning exercise and mandatory Financial Stability Assessment Programs for countries with systemic financial sectors.
  - Closer monitoring of sovereign risk and policies to reduce related vulnerabilities.
  - Ongoing work on addressing data gaps in collaboration with the FSB and other international institutions.
- Noteworthy steps to underpin better policy collaboration:
  - "Spillover reports" for the five major economies (U.S., Euro Zone, China, Japan and UK) to be presented experimentally alongside Article IV discussions in the summer.
  - Efforts to develop global "rules of the road" for policies having an impact on cross border financial flows.
- Analytical work endorsed by the Executive Board:
  - A framework to inform policy discussions with member countries on dealing with capital inflows, including the use of macroeconomic policies, prudential measures and capital controls.
  - Planned complementary work on the multilateral aspects of policies affecting financial flows in both recipient and source countries, including macroprudential policies, capital account liberalization, and dealing with outflows.
- Emphasis: ensuring orderly global financial linkages is a shared responsibility of source and recipient authorities; the Fund will support collaboration and improve monitoring of financial interconnectedness and cross border flows, including by seeking to improve availability of critical data.
- The upcoming Triennial Surveillance Review will provide an opportunity to take stock of recent initiatives and recommend further steps, "including possibly to the legal framework for Fund surveillance."

### Global liquidity
- Objective: put to rest lingering questions regarding the availability of international liquidity in times of systemic crisis.
- Progress and issues:
  - Precautionary lending tools created during the crisis have significantly improved prospects for access to global liquidity for many countries, reducing vulnerability to sudden stops in market access.
  - Analytical work on reserve adequacy has yielded useful initial insights on levels of international reserves optimal for precautionary purposes.
  - Questions remain regarding the sufficiency and composition of the overall financial safety net (including global, regional, and national components) to deal with systemic liquidity shortages.
  - During the recent crisis, the bulk of needed liquidity was provided through ad hoc arrangements deployed on a one-off basis by key central banks.
- Proposals and ongoing work:
  - Explore formalizing more comprehensive liquidity provision arrangements, including collaboration between the Fund and regional financial arrangements.
  - Ongoing work on the role and composition of the SDR holds potential to improve mechanisms to provide global liquidity and diversify safe assets.

### Low-Income Countries (LICs)
- Priority: enabling higher growth while watching out for emerging vulnerabilities; LICs are particularly vulnerable to the recent surge in food and fuel prices.
- Fund engagement:
  - Maintain extensive engagement to assist LICs in addressing shocks and rebuilding policy buffers.
  - Continue efforts to secure adequate financing for its concessional facilities to LICs.
  - Strengthen policy support through enhanced cross-country analysis.
  - New Vulnerabilities Exercise for LICs will allow closer monitoring of their vulnerabilities in the face of continuing shocks.
  - Ongoing work to improve the debt sustainability analysis framework to support growth-enhancing public investment while safeguarding debt sustainability.

### Governance
- Preserve momentum from the entry into effect of the 2008 reforms and adoption of a new historic package.
- Last Fall’s agreement on quota and governance reforms was a major milestone in realigning the Fund’s governance structure with global economic realities.
- Implementing the reforms by the 2012 Annual Meetings, as members have committed to strive to do, will be essential to the Fund’s continued legitimacy.

### Conclusion
- The crisis taught that cooperation is essential to stability.
- As the global economy continues to recover, cooperation must not fade; global and national interests are mutually reinforcing due to interconnectedness.
- Effective processes are needed to underpin cooperation; the IMFC can help guide their design to command the broadest support from the membership.

*Source: Statement by the Managing Director to the International Monetary and Financial Committee on the Fund’s Policy Agenda — April 13, 2011*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_041311.pdf_