Opening Address to the 2009 Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund

IMF News, October 6, 2009

Source details

Canonical URL: Opening Address to the 2009 Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund

Other formats

Bibliographic details

Authors: Dominique Strauss-Kahn Managing Director
Published: October 6, 2009

Global economic outlook and risks

Projection: global economic activity will expand by about 3 percent in 2010, after contracting by 1 percent in 2009.
Recovery characterized as underway but fragile: "the crisis is not over. The recovery will be sluggish, and private demand is not yet self-sustaining."
Key demand-side risks:
- Deleveraging expected to persist.
- Consumption remains tentative where household balance sheets are weak.
- Rising unemployment likely to continue in many countries through 2010.
Humanitarian and political stakes:
- Low-income countries: up to 90 million people may have been pushed into extreme poverty.
- Weak social safety nets could lead to social unrest, political instability, or war.
Policy caution: premature withdrawal of policy support could kill the recovery; credible exit strategies should be designed but not implemented too soon.

Financial sector repair and regulatory priorities

Remaining needs to secure recovery:
- Fully recognize losses.
- Increase bank capital and repair bank balance sheets.
- Widen the regulatory perimeter.
- Boost capital and liquidity buffers.
- Pay greater attention to systemically important institutions.
Coordination successes cited during crisis:
- Central bank cooperation including coordinated interest cuts and swap lines.
- Fiscal policy coordination delivering a 2 percent of GDP global fiscal stimulus.
- Estimated contribution: "a third of the growth gain from this stimulus came from this very act of coordination."

IMF actions and operational changes over the past year

Emergency financing and access:
- Stepped up emergency financing dramatically, with commitments amounting to over twice as much as during the Asian crisis.
- Doubled access limits for all borrowers.
Liquidity and concessional support:
- Injected $283 billion of extra liquidity in Special Drawing Rights into the global economy.
- Scaled up concessional lending, up to $17 billion through 2014, including $8 billion in the next two years.
- Will lend at zero interest to low-income countries through the end of 2011.
New instruments and program design:
- Introduced a new Flexible Credit Line, granting rapid upfront financing in large amounts to countries with a proven track record, with no additional conditionality.
- Streamlined conditionality to focus only on core policy measures critical for macroeconomic stability and growth.
- Accommodated higher budget deficits in both concessional and non-concessional lending programs.
- Programs include special provisions for protecting the poorest and most vulnerable.

Reform agenda — "the Istanbul decision"

Four key reform areas requested by the IMFC: mandate, financing role, multilateral surveillance, and governance.
Mandate:
- Propose reviewing the IMF mandate to encompass the whole range of macroeconomic and financial sector policies that affect global stability, beyond traditional focus on current accounts and currency movements.
Financing role:
- Build on the Flexible Credit Line and provide insurance to more countries to reduce incentives for excessive self-insurance (large reserves), which fosters global imbalances and hinders rebalancing from export-led to domestic demand.
- Assess whether enhancing financing instruments can address precautionary demand for reserves, given limited IMF resources relative to that demand.
Multilateral surveillance:
- IMF to help with G-20 mutual assessment of policies, representing a new kind of multilateral surveillance aligned with emphasis on macro-financial linkages and cross-country spillovers.
- New Early Warning Exercise, run jointly with the Financial Stability Board, to refine understanding of tail risks and vulnerabilities, including cross-border dimensions.
Governance:
- IMFC endorsed G-20 proposal to shift quota shares toward dynamic emerging markets and developing countries by at least five percent from over-represented to under-represented countries; this will be done by January 2011.
- Implementation gap: only 36 out of the needed 111 countries have passed legislation related to the 2008 quota and voice reform; countries urged to move ahead quickly.

Strategic message and call to action

Historical lesson: international cooperation prevented a deeper crisis; momentum must continue to shape a post-crisis world that delivers sustainable broad-based growth, peace, and stability.
Institutional appeal: IMF must adapt to better serve its 186 member countries and remain effective and responsive to members' needs.
Closing emphasis: the current moment is a historic opportunity to reshape the global economy and realize the ideal that "the brotherhood of man will have become more than a phrase."

Opening Address to the 2009 Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund, October 6, 2009 — Dominique Strauss-Kahn