Today the International Monetary and Financial Committee of the Board of Governors of the IMF ("IMFC"), the 24 member policy steering committee of the IMF chaired by Youssef Boutros-Ghali, the Finance Minister of Egypt, released a communiqué ahead of the IMF and World Bank Annual Meetings to be held later this week in Istanbul, Turkey, that builds on in part the commitments made by the G-20 leaders last month at the Pittsburgh Summit. The communiqué in particular calls upon the IMF "to assist the G-20 countries with the agreed mutual assessment of their economies by developing a forward-looking analysis of whether policies are collectively consistent with more sustainable and balanced trajectories for the global economy." The Board of Governors of the IMFC also ask the IMF to consider "whether there is a need for enhancing financing instruments and whether this can offer credible alternatives to self-insurance, while preserving adequate safeguards" and "to study other policy options to promote long-term global stability and the proper functioning of the international monetary system." At the conclusion of the meeting, the Board of Governors of the IMFC agreed and committed to instituting financial sector and regulatory reforms without delay and requested that the IMF to "develop a new, more comprehensive mandate to reflect its more central role in the global economy."
Other specific commitments made at the IMFC meeting include the following:
- Adopt Policies to Achieve Sustainable Recovery and Financial Stability: Building upon the framework established at the Pittsburgh Summit, the IMFC committed "to maintaining supportive fiscal, monetary, and financial sector policies until a durable recovery is secured" and to take further action as necessary to "revive credit, recover lost jobs, and reverse setbacks in poverty reduction." The communiqué also emphasizes the importance of "continu[ing] international support for low-income countries' efforts to implement their long-term development plans and to combat poverty, and to continue monitoring the impact of the crisis on these economies." The Board of Governors asked the IMF to continue to assist the G-20 in conducting ongoing assessments "by developing a forward-looking analysis of whether policies are collectively consistent with more sustainable and balanced trajectories for the global economy" and to develop, by April 2010 a clear definitive exit strategy model that takes into account country specific circumstances.
- Reform IMF Governance: In line with the G-20 leader's recent commitment to back a shift in country representation at the IMF of "at least 5%" towards "dynamic emerging market and developing countries" the communiqué stresses that quota reform "is crucial for increasing the legitimacy and effectiveness of the Fund." The communiqué further calls upon the IMF Executive Board "to meet the agreed target of January 2011 for completing the Fourteenth General Review of Quotas" and to continue monitoring and examining other governance reforms intended to enhance the transparency of the IMF.
- Enhance the IMF's Surveillance and Mandate: The communiqué notes that several important measures have been adopted to enhance the surveillance and mandate of the IMF including the recent launch of the Early Warning Exercise Initiative between the IMF and the Financial Stability Board (FSB). The communiqué, however, further calls upon the IMF "to begin implementing rapidly the new flexible framework for the Financial Sector Assessment Program (FSAP), and to ensure that it can deliver sharper macro-financial surveillance and better integration into bilateral surveillance."
- Strengthen the IMF's Financing and Sources of Liquidity: The communiqué recommends that the IMF should continue "to examine the appropriate size and composition of its resources needed to safeguard its long-term ability to meet members' needs, consistent with the Fund's status as a quota-based institution." In addition, the communiqué commends the IMF's "innovative efforts to improve financial safety nets for member countries" including recent reform of its lending practices and the creation of the Flexible Credit Line (FCL). The communiqué however calls upon the IMF to "study and report on the future financing role of the Fund. Building on the success of the FCL and high access precautionary arrangements" and "consider whether there is a need for enhancing financing instruments and whether this can offer credible alternatives to self-insurance, while preserving adequate safeguards."
Mr. Dominique Strauss-Kahn, IMF Managing Director stated that "the Meetings were a unique opportunity to shape the post-crisis world." He emphasized however, that the IMF Fund should become a global lender of last resort, including by providing a pool of reserves so that countries would not have to build up excessively large reserves of their own, or "self-insure" in case of a crisis."
U.S. Treasury Secretary Geithner also issued a statement yesterday ahead the IMF - World Bank Annual Meetings. In his statement he reflected upon "[t]he unprecedented, coordinated global response to the crisis [that] has limited the depths of the downturn" as embodied in the most recent G-20 meetings that took place last month in Pittsburgh, but noted that significant challenges still remain ahead. Particularly he highlighted the following as key priorities necessary to guiding and fostering new economic growth:
- Sustain support for global demand and growth: As economic conditions stabilize countries must begin to unwind the extraordinary policy measures adopted. Secretary Geithner noted that a "[p]lan for an eventual exit is the responsible and necessary thing to do" but cautioned that countries were not yet in the position to begin withdrawing fiscal and monetary policy support.
- Transition towards more sustainable and balanced economic growth: Secretary Geithner emphasized the importance of making investments in industries "that will drive productivity and innovation in the future" for example in education, infrastructure, clean energy and health care reform and research and development. In addition he noted that, "with financial markets more stable and growth reemerging, it is time to give new energy to the multilateral effort to lower trade barriers."
- Adopt financial reforms intended to create stability in the global financial system and to promote efficiency: Measures to institute stronger capital requirements and constraints on leverage should be implemented. In addition the Secretary emphasized that financial institutions should be strengthened to fund the most productive and innovative investments and stressed that "[g]rowth should be driven by new ideas and inventions, not by distorted incentives that produce financial bubbles."
Secretary Geithner, in a separate statement addressed the members of the IMFC and emphasized the importance of "working collaboratively to advance the reform agenda to support a durable recovery and head off future crises" adopted at the recent G-20 meeting.
Tomorrow the Development Committee, the forum of the World Bank and the IMF that is responsible for facilitating consultation and consensus-building on development issues will convene tomorrow ahead of the Annual Meetings that will take place on October 6-7, 209. The Development Committee will release a communiqué after it meeting that will provide an comprehensive overview of its discussions. The next IMFC meeting will be held in Washington, D.C. on April 24, 2010.
Also today, the IMF released a fact sheet on the IMF-FSB Early Warning Exercise. At the April Summit, the G-20 leaders called upon the IMF "to improve its analysis of the linkages between the financial sector and the real economy, as well as cross-border spillovers and sources of systemic risk" and mandated the IMF and the FSB to work jointly to conduct Early Warning Exercises ("EWE"). Under the framework of the EWE, the IMF will address economic and macro-financial concerns and the FSB will address financial system regulatory and supervisory issues.
The Exercise is specifically intended "to strengthen assessments of systemic, low probability-high impact risks to the global outlook, identify possible mitigating actions, and provide policymakers with policy options" by integrating both macro-economic and prudential perspectives on systemic risks. Further, the Exercise "aims to assess the risks of unlikely, but plausible downside scenarios that would result in policy recommendations different from those generated by the baseline scenarios" outlined in the IMF's World Economic Outlook (WEO) and Global Financial Stability Reports. The EWE, however, "does not attempt to predict crises; rather, it identifies existing vulnerable aspects of the financial system, the economy, and government interventions; it also looks for possible triggers that could precipitate a crisis; recommends risk-mitigating actions; and, if a crisis is considered to be imminent, suggests contingency plans that can be put in place quickly."