Strauss-Kahn in Istanbul: “It no longer makes sense for global economic policy to be the concern of just a small group of countries” (IMF photo)
IMF-WORLD BANK ANNUAL MEETINGS
A year ago, people feared the worst. But after concerted action to combat the crisis, the world had pulled back from the brink. “Even if it is much too early to declare victory, we have at least stepped onto the road to recovery.”
Speaking at the IMF-World Bank Annual Meetings being held in Turkey, Strauss-Kahn told the world’s economic and monetary policymakers they have an historic opportunity to create the conditions necessary for “a virtuous cycle of peace and prosperity” if they continue to work together and with the IMF on key policy measures.
Strauss-Kahn noted the “profound change” that formal and informal cooperation among nations had brought, adding that “in the face of crisis, countries came together to face common challenges with common solutions, focusing on the global common good.” The IMF chief pointed to fiscal stimulus amounting to nearly 2 percent of world gross domestic product in the past year as a critical factor in staunching the crisis, and he stated that countries are moving to address key weaknesses in their financial sectors, which will further underpin recovery if they stay the course on these reforms.
‘Istanbul Decisions’—four reform areas
He told delegates that “We have come a long way, but the journey is not over.” Coming out of the October 4 meeting of the International Monetary and Financial Committee (IMFC), the policy-steering committee asked the Fund to address four key reform areas—the IMF’s mandate, its financing role, multilateral surveillance, and governance. These “Istanbul Decisions,” he said, will be a focal point of IMF activities for the coming year.
The committee agreed to maintaining stimulative policies until global economic recovery is assured, and backed moves to reform governance of the Fund to give greater voice to dynamic emerging markets and developing countries.
The four decisions comprise
• A review of the mandate of the IMF, to encompass the whole range of macroeconomic and financial sector policies that affect global stability.
• Assessing how to build on the success of the Flexible Credit Line and provide insurance to more countries as the lender of last resort. Given that IMF resources are limited relative to the precautionary demand for reserves, the IMFC asked the Fund to look at whether enhancing its financing instruments and facilities might help it better address this issue.
• An assessment of whether the Fund’s enhanced financing instruments, such as the Flexible Credit Line, could help address the question of global imbalances by reducing the need for countries to self-insure against crisis by building up large reserves.
• The IMFC endorsed the Group of Twenty proposal for the IMF to help with their mutual assessment of policies. This represents a new kind of multilateral surveillance for the IMF.
• The panel endorsed the big step forward on the governance front agreed by the G-20. This will shift quota shares toward dynamic emerging markets and developing countries by at least 5 percent from over-represented to under-represented countries, by January 2011.
Defining moment for world economy
“And now, we stand at a defining moment,” he stressed. “We know from history that when the nations of the world come together to address common challenges in a spirit of solidarity, we can attain a virtuous cycle of peace and prosperity, and avoid a vicious cycle of conflict and stagnation.”
The Managing Director urged countries to “seize this opportunity to shape the post-crisis world,” adding that all nations “need to adapt and change” and that the IMF must change too. “In this modern globalized world, it no longer makes sense for global economic policy to be the concern of just a small group of countries. Reflecting this new reality, one of the great changes over the past year has been the ascent of the G-20—a group that includes the dynamic emerging economies.
“It was the leadership of the G-20 that harnessed the immense policy cooperation throughout the world. And recently in Pittsburgh, G-20 leaders emphasized that the global collective interest must always infuse national policy decisions.”
Build on momentum
“We must build on this momentum. The G-20 is more representative than the G-7, but there are still many countries left out, especially in Africa. There are 186 countries in our membership. These countries include the low-income countries, home to billions who still live in poverty, who remain economically marginalized. Their voices too must be heard. They too deserve a stake in the global economy. We need cooperation among all the countries of the world,” he said.
In this context, the IMF is ready to promote and foster deeper global economic cooperation. But the Managing Director urged the finance ministers and central bank governors to step forward with the necessary commitments to enhance the Fund’s legitimacy among its wide membership.
This starts with a review of the IMF’s mandate “to encompass the whole range of macroeconomic and financial sector policies that affect global stability,” noting that “This crisis had very little to do with current accounts and currency movements, the traditional focus of the Fund’s attention. In an era of high-volume and fast-moving capital flows that can extend to every corner of the world, we need a broader mandate.”
Reform implementation lagging
It also involves coming to a firm decisions on the shift in IMF quota shares toward dynamic emerging markets and developing countries by at least 5 percent from over-represented to under-represented countries by January 2011. “This boosts our legitimacy, and represents a significant down payment on our future effectiveness,” he said. “But as we talk about the future, implementation of past reform is lagging—only 36 out of the needed 111 countries have passed the legislation related to the 2008 quota and voice reform. I urge countries to move ahead here as quickly as possible.”
“At the end of the day, the endeavor we have embarked upon together is about peace and stability. It is about the welfare and security of the almost 7 billion people who share our planet. As John Maynard Keynes noted at the founding of the IMF, the hope was that ‘the brotherhood of man will have become more than a phrase’. We have a historic opportunity to reshape our post-crisis world—and to make this phrase a reality,” he concluded.
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