Weekend in Washington: Cooperating Our Way Out of Crisis

IMF Blog, October 12, 2010

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Author: Dominique Strauss-Kahn
Date: October 12, 2010
Context: Economic leaders of 187 countries met during the IMF and World Bank Annual Meetings in Washington DC amid a fragile and uneven global recovery.

High public debt
- Advanced economies have the highest public debt levels since World War Two.
- Policy guidance: In the medium term, restore fiscal sustainability; in the short term, "consolidate as much as you have to, and stimulate as much as you can."
- Key risk: growth stalling poses the greatest threat to fiscal sustainability.
Jobs and labor markets
- The world lost 30 million jobs during the crisis.
- 450 million more people will enter the labor market over the next decade.
- Policy objective: achieve growth that generates employment; "This crisis will not be over until we see unemployment levels begin to go down."
Financial sector vulnerabilities
- Although there has been progress and new regulations from the Basel III process, implementation remains incomplete.
- Needs: ensure new rules are implemented and develop better tools to resolve financial crises.
- Assessment: "The financial system is not yet safe enough."
Erosion of international cooperation
- Concern that the strong cooperation shown during the crisis is receding.
- Cited risk: headlines about "currency wars" and competitive devaluations.
- Assertion: "beggar-thy-neighbor policies do not work" and "There are no solely domestic solutions to global problems."

Commitments and shared positions
- Strong commitment to "the rejection of protectionism in all its forms."
- Strong statement about the importance of "working collaboratively" to ensure growth and create jobs.
- Recognition of the need to go further on financial sector reform and a call for the IMF to contribute in collaboration with other international bodies.
IMF role and governance
- Membership requested the IMF focus more on "spillover" issues—the effect that one country’s policies might have on others—to help address tensions and aid global rebalancing.
- Reiteration of the need to enhance the voice and representation of emerging market and developing countries in the IMF to better reflect their standing in the new global economy.
- Status: No final agreement reached on "quota and governance" reforms over the weekend, but progress indicated ("we are not far off").

Maintain a balance between fiscal consolidation and stimulus in the short term while pursuing fiscal sustainability in the medium term.
Prioritize policies that generate job-rich growth to absorb 450 million new labor market entrants over the next decade and reverse the 30 million jobs lost.
Accelerate implementation of Basel III and develop stronger crisis-resolution tools to make the financial system safer.
Preserve and strengthen international policy cooperation to avoid protectionism and counterproductive competitive devaluations.
Enhance IMF analysis of cross-country "spillover" effects and adjust IMF governance to increase emerging-market and developing-country representation.

Improved economic policy coordination over the next five years could:
- Increase global growth by 2.5 percent.
- Create or save 30 million jobs.
- Lift 33 million more out of poverty.

Progress was made during the Washington meetings, but significant risks remain and global recovery is not yet secured.
Continued and strengthened international cooperation will be central to achieving sustainable, balanced growth, reducing financial risks, and restoring employment.
Attention shifts to the next G-20 leaders meeting in Korea in November, where these questions will be high on the agenda.

Source: Weekend in Washington: Cooperating Our Way Out of Crisis, Dominique Strauss-Kahn, October 12, 2010