## Economic Stability, Economic Cooperation, and Peace—The Role of the IMF, Remarks by Dominique Strauss-Kahn, Managing Director, International Monetary Fund

_IMF News, September 23, 2009_

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## Bibliographic details
- Published: September 23, 2009

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### Peace and Economic Stability: Core Thesis
- Peace and economic stability are "intimately entwined" — loss of one increases likelihood of losing the other.  
- Peace is a necessary precondition for trade, sustained economic growth, and prosperity; economic stability and rising prosperity that is broadly shared can foster peace.  
- Economic cooperation, openness, and a multilateral approach to economic and political problems make mutually reinforcing peace and prosperity more likely.  
- Historical lesson: the Great Depression created fertile ground for a devastating war; increased international cooperation since the second world war coincided with fewer conflicts among nations and greater economic prosperity.

### The Global Financial Crisis and IMF Response
- The IMF devoted much time and effort to fighting "the global financial crisis, the greatest economic slowdown since the Great Depression."  
- The crisis is described as "truly global" — affecting big and small countries, rich and poor, and countries that made policy mistakes and countries that did not.  
- Forecast: "we are now forecasting a global recovery in the first part of 2010."  
- Labor-market lag: "unemployment might very well continue rising next year, even as the economy bounces back."  
- IMF policies and actions:
  - World leaders pledged to "triple our lending capacity, and more than double concessional resources for poorer countries."  
  - IMF emphasis: "more upfront financing in larger amounts, a greater emphasis on prevention, and more flexible lending."  
  - IMF contributions beyond lending: forecasts and policy advice—highlighting fiscal stimulus, need to restructure the banking system, and avoidance of protectionism.  
  - Recommendation maintained: preserve financial and aid flows to vulnerable countries.

### Risks and Impacts for Low-Income Countries
- Stakes are "particularly high in the low-income countries" where populations are especially vulnerable.  
- Two dramatic shocks reversed prior gains: "the food and fuel price shock and the global financial crisis" (plus a devastating drought hitting East Africa).  
- United Nations and World Bank estimate: "up to 90 million people might be pushed into extreme poverty as a result of this crisis."  
- Social indicators are deteriorating; in many areas the crisis threatens life and death, not just income.  
- IMF lending to low-income countries:
  - "Support to low-income countries over the next year or two will be three times what was available before the crisis."  
  - "We will charge zero interest on all concessional lending through 2011."  
  - Most low-income countries with an IMF-backed program have budgeted higher social spending and many are making efforts to better target spending toward the poor.  
  - "About 40 percent of the conditions in our low-income country programs focus on improving public resource management and accountability."  
  - IMF is reforming lending to be "more flexible and better tailored to individual country circumstances" and creating "a more flexible emergency facility" for countries coming out of conflict.

### War, Conflict, and Economic Costs
- Current refugee and displacement figures: "about 9 million refugees and a further 14 million who are internally displaced — in each case, about half are in low-income countries."  
- Research estimates on civil war impacts:
  - "One year of conflict can knock 2-2½ percentage points off a country’s growth rate."  
  - "Since the average civil war lasts 7 years, that means an economy that is 15 percent smaller than it would have been with peace."  
  - "The overall cost of a typical civil war, including forced migration and increased disease, amounts to around 250 percent of GDP on average."  
- Causality: weak economies, low income, slow growth, marginalization, and dependence on natural resources increase the risk of civil conflict; conflict in turn destroys infrastructure, human and financial capital, and weakens institutions.  
- Post-conflict fragility: "During the first decade after a war, there is a 50 percent chance of returning to violence."

### IMF Mandate, History, and Institutional Role
- The IMF's mandate: promote economic stability—monetary cooperation, facilitate expansion of trade and employment, oversee the global financial system, and lend to members with balance of payments needs.  
- Historical context:
  - Treaty of Versailles and interwar policies contributed to economic ruin and war; John Maynard Keynes warned against impoverishing central Europe.  
  - Post–second world war multilateralism (United Nations, European integration, Marshall Plan, social safety nets) aimed to prevent a repeat by linking economic stability to peace.  
  - The IMF was created in this multilateral milieu to fight the economic roots of war and to support stability that underpins peace and security.

### Policy Implications and Recommendations
- Preserve and strengthen international economic cooperation and multilateral responses to global shocks.  
- Provide timely financing to countries facing balance-of-payments needs to avoid forced cuts to social safety nets and essential public services.  
- Emphasize coordinated fiscal, monetary, and financial-sector policies in crisis response.  
- Avoid protectionism and maintain financial and aid flows to vulnerable countries.  
- Target social spending and protect the most vulnerable to reduce risks of social unrest and political instability.  
- Improve public resource management and accountability (about 40 percent of low-income program conditions focus here).  
- Provide tailored, flexible lending instruments (including a flexible emergency facility) and zero interest on concessional lending through 2011 to ease burdens on low-income countries.  
- Extend technical assistance and governance support to resource-rich and post-conflict countries to help manage revenues and rebuild institutions, recognizing that sustained help reduces relapse risk into civil conflict.

*Remarks by Dominique Strauss-Kahn, Managing Director, International Monetary Fund; At the Global Creative Leadership Summit, New York City, September 23, 2009.*

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## References

- [Germany and the IMF](http://www.imf.org/external/country/DEU/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [Dominique Strauss-Kahn](https://www.imf.org/external/np/omd/bios/dsk.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/sp092309_