IMF Aims at Building Stronger Post-Crisis Global Economy and International Monetary System
December 3, 2009
The International Monetary Fund (IMF) will continue to help bolster the nascent global economic recovery and build a stronger post-crisis world economy through its policy advice and by advancing the objectives for reform of the four Istanbul decisions: the Fund’s mandate; its financing role; multilateral surveillance; and governance. The work program discussed by the Fund's Executive Board, as outlined below, aims to achieve these objectives.
“While the Fund has been able to meet the crisis with a range of innovative responses, the formal mandate of the Fund may not fully capture what is now expected of an effective guardian of global macro-financial stability,” IMF Managing Director Dominique Strauss Kahn told the Executive Board during discussion of the Work Program. “This work program is ambitious and achievable and, in any event, necessary. The Fund’s ability to deliver the demanding tasks assigned to it has been a key to its ability to help countries address the crisis and we must keep up the momentum.”
POST-CRISIS GLOBAL ECONOMY
The IMF’s member nations have committed to maintaining policy support for their economies until a firmer recovery is underway, and to working together in communicating and implementing exit strategies. To help its members meet that goal, the IMF is now undertaking a thorough examination of exit strategies including the unwinding of accommodative fiscal, monetary and financial sector policies. This work will involve practical considerations that will pose challenges and trade-offs as nations unwind crisis-related programs, reorient their traditional growth models, and reshape policy frameworks to foster greater macro-financial stability.
Strengthening the International Monetary System
In reviewing its mandate, the IMF will deliver a broad outline of what’s expected of the Fund in today’s world, including surveillance, lending, and functioning of the international monetary system. This review will include a consideration of the appropriate size of IMF resources and its composition between quota and borrowed resources. It will also entail a discussion of the Fund’s financing role and of further developing IMF instruments as credible alternatives to self-insurance and excessive reserve accumulation. This discussion will assess how to build on resources like the Flexible Credit Line and High Access Precautionary Arrangements to better help members cope with financial volatility while preserving adequate safeguards. The Executive Board will also consider sources of instability in the international monetary system and the scope for diversifying the supply of reserves assets. The review will also take a fresh look at the modalities of economic surveillance.
Further Enhancing Fund Policy Advice
The request for the Fund to assist in the implementation of the G20’s Framework for Strong, Sustainable, and Balanced Growth, offers the potential to increase significantly the traction of surveillance on the Fund’s most systemic members. The Executive Board will discuss the framework and process underlying the IMF’s role in G-20 mutual assessments. The IMF will also continue examining global thematic issues, including the policies of countries with large financial sectors relative to the size of their economies and how emerging markets have coped with the crisis.
Quota and Governance Reform
The International Monetary and Financial Committee has called on the Executive Board to meet the January 2011 target for Quota reform with the objective of a shift in quota share to dynamic emerging and developing countries of at least five percent from over-represented to under-represented countries, using the current quota formula as a basis to work from, while also protecting the voting share of the poorest countries.
Furthermore, the IMF will continue to work on governance reform including the development of an open and transparent process for selecting IMF management. The Dean of the Executive Board has formed and is leading a Working Group of Executive Directors to that effect.
Low-Income Country Agenda
The IMF is advancing toward full implementation of the new income model, including gold sales, and is seeking contributions of loan and subsidy resources to support the agreed doubling of the IMF’s concessional lending capacity.
To further respond to its most vulnerable members’ needs in the wake of the crisis, the IMF will examine which post-crisis policies in some low-income countries may need to adapt to preserve debt sustainability while supporting growth and managing macro-financial stability.
“This work program is no less ambitious and taxing than the one we have just completed, but I am sure that we can successfully meet this challenge,” said Mr. Strauss Kahn.