Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
April 16, 2009
More still needs to be done to revive the global economy and pull it out of recession, IMF Managing Director Dominique Strauss-Kahn said.
Near-empty airplane in Bangkok, Thailand: global economy freefall may be starting to abate, but recovery requires right policies now (photo: Newscom)
GLOBAL ECONOMIC CRISIS
Addressing the National Press Club in Washington, D.C. on April 16, Strauss-Kahn noted three areas for urgent action—cleansing bank balance sheets of toxic assets, continuing with fiscal stimulus in 2010 to revive the world economy, and providing financial support to countries under pressure.
Looking forward, he called for improvements in the national and international financial architecture in four key areas: better regulation, better economic surveillance, better financing arrangements, and better international cooperation.
On the same day, the IMF released background research on the crisis as part of its World Economic Outlook. Two features of the current recession—its association with deep financial crisis and its highly synchronized nature—suggest that it is likely to be unusually severe and followed by a slow recovery, according to the research.
Revival depends on right policies
Strauss-Kahn said that the freefall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today.
Leaders of the Group of Twenty (G-20) industrialized and emerging market economies, meeting in London on April 2, announced a series of actions to combat the crisis, including boosting the IMF’s lendable resources to $750 billion. “I was impressed by the appreciation of leaders for the seriousness of the global recession, and by their genuine commitment to take action. The real winner is the global economy,” Strauss-Kahn told reporters.
The IMF will hold its Spring Meetings with the World Bank in Washington on April 25–26 when the world’s financial leaders will take note of the IMF’s latest forecasts for the global economy and review action taken to counter the crisis. The IMF publishes its next forecast on April 22, with a review of financial markets published in its Global Financial Stability Report the previous day.
As part of a reform of its lending facilities agreed in March, the IMF created a new credit line for strongly performing economies that needed insurance to protect them from crisis fallout. The IMF’s Executive Board is due to consider applications from Mexico and Poland to tap the credit line.
Immediate, medium-term priorities
Strauss-Kahn made the following key points, according to prepared remarks released to the media:
• Cleansing bank balance sheets. Forceful and urgent action is needed to cleanse balance sheets and recapitalize banks, as well as coordination among the affected economies. “Until this is done, attempts to restore demand are likely to falter.”
• On fiscal stimulus, countries have largely delivered in 2009, and Strauss-Kahn said he was impressed by the degree of international coordination. “But efforts might need to be sustained in 2010, because we are not out of the woods just yet.”
• Boosting IMF resources. The decisions to boost IMF resources deliver the necessary financial support to the global economy, which should boost confidence and help turn the tide of the crisis—if complemented by the right policies at the national level.”
• Preventing future crises. Strengthened financial regulation and supervision are key components of preventing future crises. The IMF remains uniquely poised to offer guidance on macro-financial linkages and spillovers across countries. Looking forward, the IMF will focus on systemic risks from all quarters, better integrating the macroeconomic and financial sector work, and will develop an early-warning exercise.
• More flexible IMF lending. The IMF is adapting its lending to become more flexible and better tailored to country circumstances. One key lesson is that prevention is better than cure. This is why the IMF has created a new flexible credit line that grants rapid upfront financing in large amounts for countries with a proven track record.
• Reforming Fund governance. For the IMF to fulfill its mandate effectively, however, it must have legitimacy with its members. Its voice must be respected in every corner of the world. The G-20 commitment to accelerate reform of country representation to early 2011 is welcome.
Comments on this article should be sent to imfsurvey@imf.org
