The IMF is helping its member countries deal with the challenges of the multi-speed recovery currently under way (photo: IMF)
IMF STRATEGY
IMF Survey online: What will be the priorities for the IMF’s work in the coming months?
Moghadam: The multispeed recovery—surging here, limping there, in the doldrums elsewhere—is testing policymakers, pulling them in different directions and creating new challenges as financial flows shift rapidly across the globe. The IMF’s work program for the next six months attempts to come to grips with these policy challenges, as well as some longer term ones exposed by the crisis.
At the same time, the recent intensification of pressures in Europe reminds us that our ongoing efforts to advise on, and provide financing for, stabilization programs will remain a prominent part of the IMF’s work, even if it is not a part of the formal “work program.”
Beyond the immediate task of supporting financial stabilization in member countries, our work in the coming months will focus on:
•Promoting balanced and sustainable growth (which includes work on risks, fiscal adjustment, and policy coordination)
•Strengthening the international monetary and financial system (which includes work on responses to capital flows, reserve accumulation, surveillance, and the global financial safety net)
•Building a stronger financial architecture (which includes work on macro-prudential surveillance and data gaps).
•Delivering higher growth and stability in low-income countries (which includes new work on growth drivers and an extension of the vulnerability exercise to low-income countries).
I should also note that all of the above proceeds against the backdrop of a series of landmark reforms over the last two years, in particular to strengthen our lending toolkit for emerging markets and low-income countries, and more recently, to modernize the way the IMF makes decisions.
IMF Survey online: What is the IMF’s role in helping to defuse current tension on issues ranging from exchange rates to trade?
Moghadam: The IMF was established for precisely this purpose, to avoid resort to policy options that seem to be in the domestic interest but are collectively destructive, and to use the Fund as a forum to promote cooperative solutions. There is a sense in many quarters that the spirit of global cooperation evident during the crisis is flagging under the strain of uneven and different pressures in different parts of the world. What can we do about it?
In theory, the IMF’s role should be relatively simple: to identify such solutions for individual member countries and for the system as a whole. In practice, this is not so easy, and arguably we have not done enough of this in our bilateral surveillance with member countries, which has tended to focus on domestic issues and policies.
It is precisely for this reason that this work program introduces the so-called “spillover reports,” as a means of spelling out the global systemic effects of domestic policies for each of the world systemic economies. These reports would also set out the views of policymakers on each other’s policies.
As such, they will complement our traditional global and bilateral surveillance products—the World Economic Outlook (WEO), Global Financial Stability Report (GFSR), and Article IVs. They will also inform the IMF’s contribution to the Group of Twenty (G-20) industrialized and emerging market economies Mutual Assessment Process, which has become a major vehicle for collaboration to deliver strong, sustainable, and balanced growth across the world.
IMF Survey online: Recent economic developments have been shining a light on capital flows and how to manage them. What advice will the IMF be offering its member countries?
Moghadam: This is a very topical issue that concerns countries in every region in one way or another. Large and volatile capital flows have implications for exchange rates, asset prices and financial stability across the globe, and capital flows are usually the most important channel through which one country’s exchange rates, asset prices, and financial stability affect other countries. We need to combine a global perspective with bilateral advice tailored to the specific circumstances of each country.
There is a substantial amount of work under way in this area, with a general paper on financial stability across borders to be discussed soon by the IMF’s Executive Board. Analytical work on these issues continues on a number of fronts―including in the WEO and GFSR―and work is also underway taking a closer look at selected country experiences with capital inflows. The latter is part of a stream of work that tries to lay out more explicitly how different policy responses to capital inflows could be weighed, including circumstances under which capital controls might be a reasonable choice.
Macro-prudential policies also have a role in this debate, and there too the IMF is engaging actively in the broader debate.
IMF Survey online: Will the IMF seek to enhance the role of the SDR, its reserve asset composed by a basket of leading currencies, as a means to deal with concerns over the U.S. dollar and other currencies?
Moghadam: The debate on a larger role for the SDR may have been stoked by recent volatility in major currencies, but it is fundamentally part of a much broader discussion on the reform of the international monetary system.
Alongside other reforms, for instance in the areas of surveillance, global safety nets, capital flows and reserve adequacy, the SDR may have a role in this regard as an additional reserve asset, and possibly as a unit of account for financial assets and international trade.
Our work on these issues will also inform the debates of the G-20, which under the French presidency will likely consider the broader questions related to the reform of the international monetary system.
IMF Survey online: As problems in Europe continue, what more can we expect from the IMF in terms of improving the quality and reach of its financial safety net?
Moghadam: As mentioned, reforms to our lending toolkit, especially the Flexible Credit Line and Precautionary Credit Line, along with new ways of working with regional financing arrangements (for instance, in Europe), have greatly strengthened the global financial safety net.
Nevertheless, in the coming months we will consider if there is scope to further improve the international community’s capacity to cope with shocks at the international, regional, and national levels.
There will be two broad strands to this work. The first will explore linkages between emerging markets to understand better how financial shocks are transmitted, in order to identify the scope for enhancing systemic crisis mitigation responses. The second will explore ways in which the IMF could work more closely with regional financing arrangements in order to strengthen the global financial safety net. In the immediate period this work will focus on dialogue with regional partners.
We will also look at recent experience with the IMF’s conditionality (the conditions linked to IMF-supported programs) in order to learn lessons, refine policy if needed, and to distill best practice.
IMF Survey online: What tangible benefits can we expect from recent IMF governance reforms?
Moghadam: First, let me stress that the change is tangible, and arguably the most comprehensive governance changes since the establishment of the IMF.
Among other things, the doubling of quotas comes with a shift in quota shares of over 6 percent to dynamic emerging and developing economies (thus bringing all the BRICs― Brazil, Russia, India, and China―into the top ten shareholders), an understanding on how to increase emerging market and developing country representation at the IMF’s Executive Board, and shifting to an all-elected Board.
Will the benefits be tangible too? Obviously, that remains to be seen. I do see the governance reforms as addressing long-standing grievances that undermined member countries’ sense of ownership and trust in the institution. As such, I am optimistic that it will strengthen the IMF in a very real way. This is particularly important if the IMF is to play its role in the aftermath of the global crisis, where mutual trust and a spirit of cooperation will be key.
IMF Survey online: What is the IMF doing to improve its policy advice and analysis?
Moghadam: While many steps have been taken to sharpen the focus on macro-financial stability issues and to enhance the impact of the IMF’s policy advice (for instance, analysis of financial and banking system networks and stability, cross-country analysis of employment policy responses), the job is far from done. The IMF’s stock-taking of its policy advice to its 187 member countries, known as the Triennial Surveillance Review, and review of the 2007 Surveillance Decision will provide an opportunity to take stock of recent efforts to sharpen surveillance and enhance its effectiveness, and to identify what further changes are needed.
More generally, the IMF is active across many of the key issues currently concerning policymakers, including work on capital flows on understanding reserve adequacy, and on the especially thorny issues of cross-border resolution and macro-prudential policies and frameworks.
IMF Survey online: Low-income countries face particular challenges in the current global economy. What is the IMF doing to help them?
Moghadam: Many low-income countries were impressively resilient during the crisis, with their economies cushioned as a result of the significant reforms that they had undertaken in recent years. The challenge for many now will be to rebuild policy space, and to turn attention once again to growth and development needs.
Having overhauled our lending facilities for low-income countries earlier this year, the Fund’s work in the coming months will focus in particular on a number of issues related to growth and stability.
On growth issues, one particular focus will be on new growth drivers for low-income countries, a piece of work that will consider the opportunities and challenges arising from the growing role of the BRICs. On stability issues, staff have developed a framework for analyzing the vulnerability of low-income countries and for managing volatility. This strand of work will include consideration of a possible role for contingent financial instruments.
On the policy front, the IMF’s engagement with countries in fragile situations will be reviewed to consider how it should be tailored to meet the unique challenges they face. We will also look at the future of the HIPC Initiative, launched in 1996 by the IMF and the World Bank to ensure no poor country faces a debt burden it cannot manage. The initiative is now substantially completed, with debt reduction packages approved for 36 countries, 30 of them in Africa, providing $72 billion in debt-service relief over time.
The global economy—and our understanding of it—have undergone profound changes in the past few years. The IMF has adapted at remarkable speed to help our members meet the new challenges they face. This process is still underway. It must continue. At this difficult juncture, the need for global cooperation among economies is greater than ever, and the IMF has a great responsibility to fulfill in supporting this cooperation in every way it can―analysis, financing, and collaboration machinery.
