The IMF is rethinking its role in the post-crisis world to ensure it is working most effectively for its 186 member countries, and helping them avoid another global recession, with all that implies for trade, jobs, and living standards.
At the IMF-World Bank meetings in Istanbul in October 2009, the IMF was called on by its policy steering committee to rethink its mandate. The IMFC wanted to ensure that the IMF is able to cover―and I quote here from the communiqué that was issued in October 2009―“the full range of macro and financial sector policies that bear on macroeconomic global stability.”
The conclusions of this work will be discussed at our upcoming Annual Meetings in Washington D.C. The issues are rather complex, as you can imagine. We will be issuing a series of papers for discussion by the IMF’s Executive Board in the coming months. Our first discussion paper was published on February 26.
The paper pointed to three main challenges for the IMF in the years to come:
• Crisis prevention. The IMF’s surveillance covers both economic policies in individual member countries, and developments relating to the global economy as a whole. But in practice, the bulk of the IMF’s efforts have been at the country level. Thus, just as national regulatory oversight after the crisis is shifting from assessing risk in individual institutions to assessing risk to the entire financial system, so too the Fund’s surveillance needs to adapt to the times. More attention should be given to the buildup of systemic risk, linkages, and spillovers across economies, with such analysis hardwired into the Fund’s standard surveillance procedures. The analysis of financial sector policies is particularly important if the Fund is to be ahead of the curve in crises.
• Crisis response. The crisis has shown that the IMF’s resources must be available with speed, coverage, and size far beyond previous assumptions. Far-reaching reforms were introduced during the crisis, but more can be done to deliver financing in a more flexible manner. It is particularly important that the Fund be able to handle systemic—as opposed to country-level—crises, with the capacity to offer short-term swap lines of the kind the U.S. Fed and other central banks made available at the start of this crisis (but which cannot be taken for granted in future ones).
• Stability of reserves. The crisis has also cast a spotlight on the tension between the high demand for global liquidity by emerging market economies and the dependence on the stability of just a few suppliers of such liquidity. If the IMF’s ability to prevent and respond to crises is strengthened, this could help alleviate countries’ perceived need to accumulate vast reserves. It may also make sense for the Fund to back the use of a global reserve asset and other initiatives that could reduce risk in the international monetary system.
We would welcome views on the three key areas of outlined above: surveillance, financing, and the stability of the international monetary system. It goes without saying that wider reform of Fund governance is key to the legitimacy of any mandate, new or old. But this is a question the membership is tackling on a separate track, including—but not limited to—the redistribution of quotas in line with fundamental changes in the relative size and role of countries, notably of dynamic emerging market countries.
The inputs from the consultation process will feed into the final report being prepared for the Annual Meetings. We expect to make the comments and inputs received in this process available on the IMF website after May 15, 2010.
My colleagues and I look forward to hearing your ideas!