80 Years of Bretton Woods and the Challenges Ahead, Speech by Ceyla Pazarbasioglu, Director of the IMF's Strategy, Policy, and Review Department
IMF News, March 4, 2024
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- Published: March 4, 2024
Mandate and evolving roles of the IMF
- Core mandate per the Articles of Agreement: promote monetary cooperation and the stability of the international monetary system, facilitate international trade to support sustainable economic growth and employment, and provide temporary support to members to address balance of payments difficulties.
- Central principle: assist members to overcome balance of payments problems without resorting to measures that threaten national or international prosperity.
- The mandate has not changed since the 1944 Bretton Woods Conference, but its interpretation has evolved with shifts in the global economy.
- The IMF is a learning institution that adapts within its mandate and in service to its 190 member countries.
Surveillance, lending, and macro-criticality
- Surveillance:
- Post-global financial crisis emphasis on macro-financial linkages.
- Increasing concern with domestic policies and their spillovers in recent work.
- Lending toolkit evolution:
- After the early 1980s collapse in global commodity prices, the Enhanced Structural Adjustment Facility was introduced in 1987 to provide low-interest loans to poor countries.
- More recently, precautionary arrangements were introduced and structural policy issues have been integrated into IMF programs.
- Macro-criticality definition and scope:
- Macro-criticality: whether a policy or issue significantly affects a country’s present or prospective balance of payments or domestic stability.
- Always includes fiscal, monetary, and financial policies.
- Can extend to climate change, inequality, digital developments, and demographic shifts depending on country-specific characteristics.
- Institutional needs emphasized:
- IMF must remain representative of its global membership and well resourced.
- Safeguarding financial strength while enhancing surveillance and capacity development is essential.
Climate, structural transitions, and resilience-building
- Analytical focus:
- Incentivizing decarbonization via a combination of carbon pricing and non-pricing instruments (taxes, emissions trading schemes, subsidies, regulations).
- Consideration of a carbon price floor differentiated by members’ development level to possibly accelerate decarbonization.
- Developing tools and models to incorporate climate change and climate policies (mitigation, adaptation, and transition) into macro frameworks.
- Financial sector and market work:
- Support for climate risk analyses and supervision to build financial sector resilience to climate risks.
- Collaboration with partners to strengthen local capital markets and scale up private climate finance.
- Forward-looking priorities:
- Help members build resilience against disruptive structural shifts related to climate, demographics, technology, and geopolitics, in coordination with other international institutions.
Challenges to multilateralism and promoting global cooperation
- Global context and risks:
- New transformations: climate change, digitalization and artificial intelligence, demographic transition.
- Surge of policy measures putting the world at risk of fragmentation after several decades of increasing global economic integration.
- Still-elevated inflation and slowing growth compound challenges.
- Indicators and trends:
- The number of new trade barriers introduced in 2023 was three times higher than in 2019.
- Industrial policies driven by geopolitical concerns are on the rise, with evidence of trade redirection toward politically closer countries.
- Policy responses and recommendations:
- Manage near-term inflation expectations through effective communication and improved monetary policy frameworks to achieve a soft landing.
- Promote diversified supply chains and avoid beggar-thy-neighbor protectionist strategies to manage future supply shocks.
- Pursue targeted progress where common ground exists and maintain collaboration where inaction would be devastating.
- Use rigorous surveillance and evenhanded policy advice, including analysis of spillovers from unilateral actions.
- Continue to convene 190 member countries to develop common approaches and advocate for open, stable, and transparent trade policies.
- Advance pragmatic multilateralism where possible.
- Sovereign debt restructuring:
- Launched the Global Sovereign Debt Roundtable (co-chaired with India as G20 President and the World Bank) to bring together public and private creditors and borrowers to accelerate restructuring cases, including under the G20’s Common Framework.
- GSDR discussions have helped increase common understanding on technical issues blocking progress: role of MDBs, perimeter of debt to be restructured, comparability of treatment.
- Engagement has been constructive and is facilitating timely debt restructurings, though more work remains.
Special Drawing Rights (SDRs)
- Purpose and history:
- SDRs created in 1969 to supplement IMF member countries’ official reserves.
- Several general SDR allocations have taken place since creation to help meet global reserve needs.
- Largest allocation:
- August 2021 general allocation of SDRs 456 billion (about $650 billion) — the largest SDR allocation in history.
- The allocation injected reserves and liquidity during a period of exceptionally high uncertainty and helped meet long-term global demand for reserves.
- Impact and use:
- 2023 Ex-Post Report characterized the allocation as a “shot in the arm” for the global economy confronting the pandemic and its implications.
- Several emerging market and developing economies used SDRs to improve financing composition and repay debt.
- Other members sold foreign exchange to Finance Ministries in exchange for local currency treasury bonds, boosting foreign exchange liquidity without debt issuance.
- The 2023 SDR Allocation Ex-Post Report found the allocation was beneficial for the global economy.
- Limitations and targeted use:
- SDR allocations are useful to build confidence and strengthen global economic and financial resilience but are not a silver bullet; they should be utilized only at times of global crises.
- SDR allocations are blunt tools because most of the allocation goes to higher income countries, being linked to members’ quota shares at the IMF.
- G20 pledge and channeling to vulnerable members:
- In October 2021, the G20 pledged to channel US$100 billion (20 percent of their SDR allocation) for the benefit of vulnerable members and have mostly delivered on this pledge through the Poverty Reduction and Growth Trust (PRGT) and Resilience and Sustainability Trust (RST).
- PRGT and RST financing:
- PRGT: total pledges for loan resources, as well as deposit and investment agreements that generate resources for PRGT subsidies, stand at almost US$55 billion from 29 contributing countries. Over 95 percent of these resources or about US$53billion have become effective to date.
- RST: current pledges stand at almost US$42.2 billion from 21 countries, with about US$40 billion effective.
- Role of trusts:
- PRGT provides balance of payments support to deal with external shocks and support programs involving debt restructurings, restoring macroeconomic stability and strengthening institutions to unlock additional financing.
- RST provides affordable long-term financing to help countries address structural challenges like climate change and pandemic preparedness.
Conclusion and institutional priorities
- The IMF will continue to adapt in service to its membership in response to new global risks related to its mandate.
- Commitment to help members navigate new shared challenges and disruptive transitions, building on 80 years of experience.
- Emphasis on remaining forward-looking, representative, and well resourced to deliver benefits to members.
Speech by Ceyla Pazarbasioglu, Director, Strategy, Policy, and Review Department; Vienna, Austria; March 4, 2024.