Press Conference on the International Monetary and Financial Committee Meeting with IMFC Chairman Tharman Shanmugaratnam, International Monetary Fund Managing Director Christine Lagarde, IMF First Deputy Managing Director David Lipton and Acting IMF External Relations Director Gerry Rice
IMF News, September 24, 2011
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- Published: September 24, 2011
Assessment of the global situation and consensus view
- Ministers exhibited "very clear recognition of the gravity of the situation" and described the global environment as "precarious".
- Crisis characterization:
- Confluence of sovereign debt and banking risks with the epicenter in the euro area.
- Underpinned and complicated by a "weakening global economy, especially in the advanced economies, including the U.S."
- Signs of knock‑on effects in emerging economies and "the poorest economies".
- Contributing factor: "a problem of lack of confidence, in particular lack of confidence in policy actions to arrest the crisis."
- Collective political stance:
- Strong collective resolve "that we will do what it takes to prevent an escalation of the crisis" and to "avoid the prospect of a prolonged period of stagnation in the advanced economies".
- Recognition that "no one is going to be immune from problems in any one part of the world" and that problems in the euro area will affect all countries.
Policy priorities and recommended actions
- Immediate priorities:
- Implementation of the euro area leaders' agreement of July 21st, including enhancing the size of the EFSF and increasing flexibility of its use.
- Implementation of existing programs in countries under program is emphasized as "the way to go"—implementation is repeatedly underscored ("Implementation. Implementation. Implementation.").
- Fiscal policy guidance:
- Consensus that "credible medium‑term fiscal consolidation amongst the advanced economies, U.S. and Europe in particular, was at the heart of restoring confidence".
- Medium‑term consolidation can "buy a little bit of space in the short term" if credible; short‑term slowing of consolidation may be appropriate in some cases (e.g., the U.S.), varying country by country as stated in the communiqué.
- No trade‑off asserted between medium‑term fiscal sustainability and short‑term support; doing the right things medium‑term reinforces avoiding sharp short‑term contractions.
- IMF role and instruments:
- Membership expressed willingness to see the IMF "playing a key role in resolving the crisis, and importantly in rekindling growth in the global economy over the medium term."
- The IMF "stands ready to provide stronger support where necessary" and "will deliver on any type of resources necessary and available to all its members."
- Support spans policy advice, facilitation, and organizing facilities with adjusted flexibility tailored to crisis‑bystander countries and middle‑income countries subject to external shocks.
- Managing Director presented an Action Plan; IMFC asked the IMF "to play a decisive role and to be fully engaged" in specific forms including enhanced surveillance and resources/facilities adjustments.
Surveillance, spillovers, and institutional reform
- Surveillance enhancements:
- Membership encouraged continuation and expansion of spillover analysis and "consolidated multilateral report" work to identify interconnections and financial amplification channels.
- The IMF is tasked to be "as multilateral as possible" in surveillance, identifying "the connection between the dots" to improve policy advice and early warnings.
- Institutional reform and resources:
- Reminder to implement the reforms approved in 2010, notably the decision "to double the quota" and the need for continued ratification by members.
- The IMF should "fine‑tune the instruments" and adjust the financial safety net and toolkits to member needs.
- Focus on protecting countries that are crisis bystanders with solid fundamentals but at risk of contagion, and on middle‑income countries exposed to external shocks.
Financial stability, contagion risk, and broader mandates
- Recognition of changed crisis dynamics:
- Crises today are "on a larger scale" and "far more connected" than a decade ago; the financial sector is a dominant propagator of shocks.
- IMF's mandate and toolkit must broaden beyond traditional country‑by‑country balance of payments surveillance to multilateral surveillance linking macroeconomics and financial markets.
- Emphasis on anticipating unusual correlations and tail risks by "joining the dots."
- Financial safety nets and reserve behavior:
- Strengthening financial safety nets is intended to reduce the need for defensive reserve accumulation and sporadic market interventions by countries.
- Work on reforming the international monetary system and recommending guidelines to address excessive capital inflows/outflows is underway under G‑20 auspices, with more to come "later on in the autumn."
Observations on regional and country considerations
- Euro area centrality:
- The euro area is "at the epicenter" and its problems are viewed as globally consequential; full implementation of commitments (e.g., July 21st agreement) is critical.
- Greece:
- IMF position emphasizes implementation of agreements for stability; Management will not speculate on rumors regarding modifications to agreed packages.
- Emerging and developing economies:
- Communiqué notes that "emerging and developing economies have exhibited strong resilience in terms of growth and stability during the crisis."
- Specific regional arrangements (e.g., CFA franc zone) were noted for their perceived benefits from alignment with the euro, with decisions on arrangements left to the countries concerned.
- Governance and investor treatment:
- Acknowledgement that crisis responses and IMF involvement today differ from past episodes (e.g., Asia) owing to scale and interconnection, requiring larger scale and different forms of IMF involvement.
Press Conference on the International Monetary and Financial Committee Meeting, September 24, 2011.