An IMF for the 21st Century, Address by Dominique Strauss-Kahn, Managing Director, International Monetary Fund, At Bretton Woods Committee Annual Meeting, Washington D.C.
IMF News, February 26, 2010
Source details
- Canonical URL
- An IMF for the 21st Century, Address by Dominique Strauss-Kahn, Managing Director, International Monetary Fund, At Bretton Woods Committee Annual Meeting, Washington D.C.
Other formats
Bibliographic details
- Published: February 26, 2010
Overview and context
- Speech delivered in Washington D.C., February 26, 2010. As Prepared for Delivery.
- Purpose: set out a renewed vision for the IMF to respond to post-crisis challenges while remaining grounded in its core mandate.
- Membership context: the Fund serves 186 member countries.
- Historic reference points: IMF created in 1944; crisis described as the worst financial disaster since the Great Depression.
Three priority areas for a renewed IMF mandate
- Core objective restated: promote economic stability and collaboration to support peace and prosperity.
- Three priorities identified:
- Crisis prevention
- Crisis response
- Strengthening the international monetary system
Crisis prevention — surveillance, systemic risk, and capacity building
- Findings and gaps:
- Fund surveillance has focused largely at the country level, with insufficient attention to cross-country linkages, spillovers, and global financial transmission channels.
- Need to improve oversight of systemic and financial risks and to trace how risk percolates through the global financial "plumbing" formed by several dozen large complex financial institutions.
- Capital flows require more effective surveillance and clearer policy guidance on capital account liberalization and the role of capital controls.
- Proposed tools and approaches:
- Consider a clearer mandate to pursue risks to global economic and financial stability and a new multilateral surveillance procedure to assess broader systemic effects of country policies.
- Support for the G-20 Mutual Assessment Process (MAP) as an indicator of readiness for more systemic surveillance and mutual accountability among largest economies.
- Introduce thematic country reports and joint policy discussions for countries facing common issues to improve cross-country comparison and analysis of regional spillovers.
- Construct a global risk map in collaboration with the Financial Stability Board to improve availability and monitoring of financial sector data.
- Strengthen member countries’ capacity through high-quality technical assistance and institution building.
Crisis response — lending instruments, speed, coverage, and scale
- Observations:
- In the crisis, key emerging market economies often turned first to central bank swap lines (the Fed and others), rather than the Fund.
- Over the past year (relative to speech), IMF resources were boosted to over $850 billion.
- Financial instrument innovations already introduced:
- Flexible Credit Line (FCL): an insurance-type facility providing financing to members who pre-qualify—with no further conditionality.
- Streamlined conditionality across financing to focus on essentials for macroeconomic stability.
- Further options and proposals:
- Explore short-term, multi-country credit lines that the Fund might extend in a systemic crisis.
- Make the FCL more attractive by increasing the flexibility of access and duration.
- Collaborate with regional reserve pools; consider Fund resources serving as a backstop to regional pools.
- Scale up concessional support for low-income countries:
- Revamped lending framework with new financing instruments and streamlined conditionality.
- A major boost in concessional lending resources will allow the Fund to triple our lending in low-income countries over the next year or two.
- Waiving all interest due on IMF lending to low-income countries until 2012.
- Consider expanding IMF role as provider of insurance to low-income countries against global volatility and shocks, including effects of climate change.
- Propose innovative solutions such as a pool of highly concessional money—grants, ideally—to top up or co-finance IMF emergency lending.
- Resource adequacy:
- Current resource base noted as over $850 billion, but the Fund should undertake careful analysis of members’ potential financing needs over the medium term to ensure adequacy.
International monetary system — reserves, reserve assets, and global consistency
- Assessment:
- Current system showed resilience during the crisis; the U.S. dollar functioned as a safe haven asset.
- Tension exists between high demand for precautionary reserves and a narrow supply of such reserves.
- IMF roles and possible future steps:
- Provide liquidity to help meet reserve demand; further refinements of the FCL could contribute.
- Support multilateral efforts to increase global consistency of economic policies and to reduce global imbalances to ease reserves accumulation pressures.
- Consider, over time, the intellectual exploration of a new global reserve asset and the potential for the Fund to provide a globally issued reserve asset similar to—but different in important respects from—the SDR.
Governance — legitimacy, quota reform, and diversity
- Governance imperative:
- Renewed mandate requires addressing long-standing governance grievances to ensure legitimacy, even-handedness, credibility, and trust in IMF actions.
- Progress and challenges cited:
- The G-20 provided political backing for governance reform, including an important quota shift agreed at the Annual Meetings in Istanbul.
- The 2008 quota and voice reform is still not effective:
- While approved by nearly all Governors in April 2008, only 64 member countries representing about 70 percent of the required 85 percent voting power have passed the necessary legislation to make the reform effective.
- Additional governance elements:
- Need to go beyond quota and voice to address diversity of staff and management—an area where progress is sought but more is required.
Conclusion and policy message
- Central message: the Fund should refocus and build capacity to address systemic risks; this is not an expansion of remit but a clarification and strengthening of its mandate.
- Call for multilateralism:
- The crisis validated the original IMF mandate and demonstrated the need for more—not less—multilateralism and IMF engagement in the 21st century.
- Final objectives for the renewed Fund:
- Meet global challenges ahead.
- Serve membership more effectively.
- Build a Fund for the 21st century.
Speech by Dominique Strauss-Kahn, Managing Director, International Monetary Fund, At Bretton Woods Committee Annual Meeting, Washington D.C., February 26, 2010.