## Speech at the 44th SEACEN Governors' Conference, by Dominique Strauss-Kahn, Managing Director, IMF _IMF News, February 7, 2009_ ## Source details **Canonical URL:** [Speech at the 44th SEACEN Governors' Conference, by Dominique Strauss-Kahn, Managing Director, IMF](https://www.imf.org/en/news/articles/2015/09/28/04/53/sp020709) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/53/sp020709/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/53/sp020709/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/53/sp020709/bundle-manifest.json) ## Bibliographic details - Published: February 7, 2009 --- ### Context and setting - Kuala Lumpur, Malaysia, February 7, 2009 - As Prepared for Delivery - Delivered at the 44th SEACEN Governors' Conference and the 50th Anniversary of Bank Negara Malaysia. ### State of the global economy — key findings - Global growth projected to be close to zero, described as "the worst performance in most of our lifetimes." - Forecasted recessions in most advanced economies. - Some prospects of a recovery in 2010, conditional on strong policy action. - "Loss of confidence is now the central problem." - Asian growth forecast for 2009 halved to "about 2½ percent" due to heavy export dependence and collapse in global trade and industrial activity. - Sharp fall in financing for emerging markets observed even without government intervention. - The IMF "lent more than it has in any single month in its history" in November last year. ### Restoring stability to financial markets — findings and recommended actions - Immediate steps taken: massive liquidity support, extensions of deposit insurance and guarantees. - Underlying problem: lack of confidence in solvency stemming from insufficient recognition of past losses and fears of new losses beyond real estate. - Governments should push the bank restructuring process forward with emphasis on cleansing balance sheets: - Re-examine bank balance sheets on a worst-case basis, determine viability, and restructure where required; be ready for full-fledged intervention. - Provide public support where necessary to rehabilitable banks via capital, bad asset carve outs, and guarantees. - Sell or wind-up insolvent banks quickly, depending on remaining franchise value. - Establish new public resolution agencies to manage "bad assets" to maturity or sale; precedent cited: Korea, Malaysia, Thailand, and Sweden. - Acknowledgement that these measures will be expensive and take time, but delay increases costs of banking crises. ### Supporting aggregate demand — analysis and policy prescriptions - Monetary policy responses praised: central banks acted quickly (examples: Monetary Authority of Singapore, Reserve Bank of India, Bank of Korea, central banks across Asia including Malaysia). - Monetary policy alone is insufficient given financial market disruption. - The IMF has advocated fiscal stimulus for a year; there is now "a broad consensus" on fiscal stimulus. - Not all countries can undertake fiscal stimulus; some face risks to creditworthiness and may need to contract budgets. - Countries able to act should do their part; fiscal stimulus is one way to increase domestic demand. - China highlighted as having room for further fiscal stimulus and for rebalancing demand toward private consumption through: - Improving the social safety net, especially social insurance and pensions. - Allowing greater flexibility for its currency to appreciate over time. - Increased domestic demand in China would support intra-regional trade and exports for other Asian countries. ### Support for crisis-hit countries — IMF role and resource needs - The Fund has provided substantial support to Hungary, Ukraine, Pakistan, Iceland, Latvia and Belarus; increased support to many low-income countries and readiness to do more. - Anticipation that worst effects on emerging economies may still be to come due to cuts in exports and drying up of capital flows. - Two-pronged IMF preparedness: - Resource adequacy: Japan has offered to add "$100 billion" to Fund resources; other countries urged to follow. - Operational adaptation: Reduce stigma associated with IMF support in Asia by collaborating closely with regional groupings like SEACEN and ASEAN + 3, including through cofinancing. ### Policies to avoid a future crisis — governance, oversight, and coordination - Need for changes in financial market regulation and greater international coordination, especially from countries with growing financial centers. - The IMF's special role: expertise in assessing linkages between financial sector and financial market rules and macroeconomic outcomes; critical for regulatory framework design and oversight. - Early warning systems require improvement: current warnings were too scattered and unspecific to trigger collective policy responses. - Need for a less fragmented and more pointed early warning system to integrate expertise across institutions. - Risks are not confined to emerging markets; review of systemic risks in advanced and emerging market countries, with better oversight and stronger responses to asset price surges. - Need to generate action once warnings are issued; past lack of international coordination was problematic. - Example: domestic guarantees and liquidity provision during the crisis increased cross-border risk. - A central body is needed to lead responses to systemic risks; the G-20 is beginning to play this role but does not represent all countries. - The IMF could play this role provided deficits in ownership and efficiency are addressed. - Specific need to implement agreements on rebalancing quota shares and to agree on a timetable for the next stage of quota reform; hope these will be done "this year." ### Concluding observations - Causes of the crisis identified as: opacity of financial markets, greed of some bankers, complacency of regulators and policy makers. - Institutional changes can reduce future crisis likelihood, but immediate priority is exiting the present danger through clear thinking and new willingness to cooperate. - Positive note on Bank Negara Malaysia's 50 years as "a tower of intellectual strength" and SEACEN's 40 years as "an example of cooperation between countries." *Speech at the 44th SEACEN Governors' Conference, by Dominique Strauss-Kahn, Managing Director, IMF* --- ## Content in this bundle - [020709pdf (PDF)](/-/media/websites/imf/imported/external/np/speeches/2009/pdf/_020709pdf.pdf){rel="external" type="application/pdf"} --- ## References - [Malaysia and the IMF](http://www.imf.org/external/country/MYS/index.htm) - [United States and the IMF](http://www.imf.org/external/country/USA/index.htm) - [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm) - [Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm) - [Speeches](https://www.imf.org/en/news/searchnews) - [Dominique Strauss-Kahn](https://www.imf.org/external/np/omd/bios/dsk.htm) - [Statement by the IMF Managing Director Dominique Strauss-Kahn at the Conclusion of his Visit to Malaysia](https://www.imf.org/external/np/sec/pr/2009/pr0929.htm) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/external/np/speeches/2009/images/020709_1a.jpg](https://www.imf.org/external/np/speeches/2009/images/020709_1a.jpg) - [https://www.imf.org/external/np/speeches/2009/images/020709_2a.jpg](https://www.imf.org/external/np/speeches/2009/images/020709_2a.jpg) - [https://www.imf.org/external/np/speeches/2009/images/020709_4a.jpg](https://www.imf.org/external/np/speeches/2009/images/020709_4a.jpg) - [https://www.imf.org/external/np/speeches/2009/images/020709_5a.jpg](https://www.imf.org/external/np/speeches/2009/images/020709_5a.jpg) - [https://www.imf.org/external/np/speeches/2009/images/020709_7a.jpg](https://www.imf.org/external/np/speeches/2009/images/020709_7a.jpg) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp020709_