## “Summoning the Will to Act” — John Lipsky, Acting Managing Director, International Monetary Fund

_IMF News, May 19, 2011_

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## Bibliographic details
- Published: May 19, 2011

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### Economic backdrop: a strengthening, yet fragile recovery
- Global recovery is gaining strength but remains "fragile and uneven, and beset by uncertainties."
- Two main challenge groups:
  - Aftermath of the crisis:
    - "Substantial progress" rebuilding buffers and strengthening regulation in the financial sector, but work remains on "supervision and cross-border resolution."
    - Fiscal challenge: "At the end of 2010, government debt was as much as 25-30 percentage points of GDP above the pre-crisis level for several advanced economies—and is projected to continue rising, in the absence of bold measures to rein it in."
    - IMF engagement in Europe:
      - Agreed joint IMF-EU financing package for Portugal worth €78 billion "aimed at reigniting growth and employment."
      - Completed the first and second reviews of Ireland’s program.
      - Ongoing mission in Greece to support the adjustment program.
    - Emphasis: primary responsibility for peripheral euro area countries lies with those countries themselves; need for a "comprehensive and consistent—and ... cooperative and shared" European solution comprising:
      - (i) strengthening area-wide crisis management frameworks;
      - (ii) accelerating financial sector repair;
      - (iii) improving fiscal and macroeconomic coordination; and
      - (iv) promoting high-quality growth.
  - Unevenness of the recovery:
    - Many advanced economies: "moderate recovery" with "unemployment remains stubbornly high" and "risk of higher structural unemployment."
    - A few advanced economies with structural reform, e.g., Germany, show growth "notably above-trend."
    - Emerging economies: "recovery has been quite robust—and in some, overheating is an increasing concern."
    - Commodity prices and headline inflation rising; "increasing food prices—that recently eclipsed the highs set in 2008—have particularly difficult implications for low-income countries."
- Policy cooperation is more difficult as countries are at different stages of recovery, yet global problems require global solutions; IMF role emphasized given "near-universal membership of 187 countries."

### Modernizing IMF surveillance for an interconnected world
- Objective: "deepen our understanding of the complex and growing interlinkages across the world," with emphasis on drivers of capital flows and the "quality of growth" including income distribution and unemployment.
- Recent and ongoing tools and reviews:
  - Early Warning Exercise: "Since its inception in 2008, the Early Warning Exercise has become firmly established."
  - FSAP: "last year, the Financial Sector Assessment Program (or FSAP) was made mandatory for countries with systemic financial sectors."
  - Trilateral Surveillance Review: "ongoing ... which should be completed this fall," to assess detection and warning of risks and the "effectiveness, candor, and evenhandedness" of surveillance.
- Three priority surveillance areas called out:
  - Spillovers:
    - Rising trade and financial interlinkages increase exposure to spillovers from other countries’ policies.
    - In-depth analysis of outward spillovers from the five largest economies: "China, the Euro Area, Japan, the United Kingdom, and the United States."
    - Results to be presented in a series of Spillover Reports "to be discussed by our Board, alongside each country’s Article IV report, this July."
    - Aim: facilitate policies that serve both national and global interests.
    - Support for the G-20 Mutual Assessment Process (MAP) with IMF analytical input to address internal and external imbalances.
  - Capital flows:
    - Capital flows now dominate international transactions for many countries; size and volatility can exacerbate macroeconomic and financial stability risks.
    - Policy guidance:
      - "First line of defense in dealing with surging capital inflows should be macroeconomic policies, though capital flow management measures could be useful in certain circumstances."
      - Recommend structural reforms "including the deepening of domestic financial markets" and prudential measures to strengthen financial resilience.
    - Ongoing work to understand drivers of capital flows in supplier and recipient countries and to explore a "voluntary and cooperative approach" or "an agreed reference framework for individual country policies."
  - Quality of growth:
    - Need to better incorporate social factors (e.g., income distribution, unemployment) into analysis and policy advice.
    - "Recent developments in the Middle East and North Africa show that we must deepen our understanding of the broader factors that may affect macroeconomic stability."
    - IMF will draw on outside experts to "gain a better appreciation of the social factors that affect macroeconomic stability."

### Strengthening the global financial safety net
- IMF has increased financial resources and created "insurance-like instruments intended for crisis prevention, rather than crisis resolution":
  - Flexible Credit Line (for members with appropriate policies).
  - Precautionary Credit Line (for members implementing policy adjustments).
- Remaining concerns:
  - "Doubts remain about whether the global financial safety net adequately reflects potential risks, in view of rising trade and financial linkages."
  - Countries lack confidence in "secure access to international liquidity at times of systemic crises."
  - Need to "create proper incentives in designing safety net tools" to avoid paradoxical outcomes.
- Ongoing analytical work:
  - Studying causes of systemic crises, cross-border linkages, and past systemic crises and policy responses to better appreciate global liquidity needs.
  - Exploring ways to provide short-term liquidity at times of systemic stress via collaboration with "major central banks, systemic risk boards, and regional financial arrangements."
  - Lessons from ad hoc central bank arrangements during the recent crisis to inform more systematic mechanisms.
  - Ongoing work on "the role and composition of the SDR" as a potential mechanism to improve global liquidity provision.

### Conclusion and policy recommendations
- Core IMF contributions to sustain collaboration and systemic stability:
  - Increase understanding about global economic interlinkages.
  - "Demonstrate analytically the benefits of enhanced policy collaboration."
  - "Facilitate the international dialogue needed to find global solutions."
- Role of the Bretton Woods Committee: advocate for international cooperation and "summon the will of policymakers to act"—reminding leaders that acting in the global interest serves their national interest.

*Source: “Summoning the Will to Act” by John Lipsky—Acting Managing Director, International Monetary Fund, Annual Meeting of the Bretton Woods Committee; May 19, 2011.*

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## References

- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [John Lipsky](https://www.imf.org/external/np/omd/bios/jl.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [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/sp051911_