Economic Stability, Economic Cooperation, and Peace—the Role of the IMF, speech by Dominique Strauss-Kahn Managing Director, International Monetary Fund at Oslo, October 23, 2009
IMF News, October 23, 2009
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- Economic Stability, Economic Cooperation, and Peace—the Role of the IMF, speech by Dominique Strauss-Kahn Managing Director, International Monetary Fund at Oslo, October 23, 2009
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- Authors: Dominique Strauss-Kahn Managing Director
- Published: October 23, 2009
Relationship between economic stability and peace
- Peace is presented as a necessary precondition for trade, sustained economic growth, and prosperity; economic stability and broadly shared rising prosperity can in turn foster peace.
- Historical lesson: the Great Depression helped create conditions for a devastating war; economic instability can provoke political upheaval, social unrest, and conflict.
- The speech frames peace and prosperity as mutually reinforcing and dependent on economic cooperation, openness, and multilateral approaches.
The global crisis, recovery, and multilateral cooperation
- The current slowdown (as of the speech) described as "the deepest and broadest since the Great Depression."
- With the collapse of Lehman Brothers, uncertainty turned to panic and economic activity collapsed; fears of another Great Depression were "not unfounded."
- Latest projections (as cited) suggest that global economic activity will expand by about 3 percent in 2010.
- Recovery credited to bold policy decisions and "an unprecedented degree of economic policy cooperation" across fiscal, monetary, and financial sector policy.
- The crisis catalyzed the ascent of the G-20 as "the leading vehicle of multilateral cooperation."
- G-20 leaders in Pittsburgh stressed that the global collective interest must infuse national policy decisions; early signs of sustained multilateralism were described as positive.
- Quota-share reform: G-20 pledged to shift quota shares toward dynamic emerging markets and developing countries by at least five percent from over-represented to under-represented countries.
IMF role, actions, and legitimacy
- The IMF acted as a "first responder" during the crisis; G-20 leaders substantially boosted IMF resources.
- IMF actions during the crisis included:
- Scaling up emergency financing dramatically.
- Injecting an unprecedented amount of liquidity into the system.
- Making lending more flexible.
- Supporting international response with forecasts and policy advice.
- Post-crisis adaptation: G-20 asked the IMF to help with mutual assessment of policies, extending confidence to IMF surveillance.
- Legitimacy emphasized as necessary for effectiveness; quota shifts toward emerging markets expected to boost legitimacy and effectiveness.
Risks, stakes, and the IMF’s support to low-income and fragile countries
- Ongoing risks: crisis is "by no means over"; economic activity still dependent on policy support; premature withdrawal of support could kill the recovery; job creation will lag growth.
- Social stakes high in low-income countries:
- United Nations and World Bank colleagues estimate up to 90 million people might be pushed into extreme poverty as a result of the crisis.
- Economic marginalization could lead to social unrest, political instability, breakdown of democracy, or war.
- War’s economic impact:
- Research cited: one year of conflict can knock 2-2½ percentage points off a country’s growth rate.
- Average civil war lasts 7 years, implying an economy that is 15 percent smaller than it would have been with peace.
- During the first decade after a war, there is a 50 percent chance of returning to violence.
- Risk factors for conflict include low income, slow economic growth, marginalization, and dependence on natural resources.
- IMF support to low-income countries:
- Support over the next year or two will be three times what was available before the crisis.
- IMF will charge zero interest on all concessional lending through 2011.
- About 40 percent of the conditions in low-income country programs focus on improving public resource management and accountability.
- Most low-income countries with an IMF-backed program have budgeted higher social spending and many are targeting spending toward the poor.
- Post-conflict and fragile situations:
- IMF provides lending and technical assistance to rebuild or strengthen institutions and economic management.
- A more flexible emergency lending facility was introduced for countries coming out of conflict.
- IMF’s support can help open the door to additional aid flows; sustained help is emphasized to reduce relapse risk.
Mandate, history, and the imperative of multilateralism
- The IMF’s mandate of economic stability is linked to global peace and cooperation; origins traced to lessons from the interwar period and the Treaty of Versailles.
- John Maynard Keynes cited for urging policies that promote mutual prosperity and solidarity.
- Post–World War II multilateral institutions and integration (United Nations, European integration, Marshall Plan, social safety nets) seen as instrumental in cementing peace.
- Founding Bretton Woods aim: promote monetary cooperation, facilitate expansion of trade and employment, oversee the global financial system, and lend to members with balance of payments needs—anchored in the belief that stability fosters peace and security.
- Call to action: historic opportunity to renew commitment to multilateralism and adapt it to a post-crisis world; "The peace of our planet depends on it."
Speech by Dominique Strauss-Kahn, Managing Director, International Monetary Fund, Oslo, October 23, 2009.