Saturday, June 6, 2009

IMF Strengthens Actions to Help Resolve Global Economic Crisis

The International Monetary Fund (IMF) will build upon ongoing efforts to respond rapidly and boldly to the needs of its membership during the current global crisis and will continue to mobilize commitments for increased resources, complete the overhaul of the Fund’s lending framework, further strengthen the quality of its surveillance, and consider reforms in the key area of the Fund’s own governance.

“The IMF has played a central role in helping member countries cope with the financial and economic crisis, and we are ready to continue these efforts,” Mr. Strauss-Kahn told the Executive Board during the discussion on the Work Program. “We are moving quickly to advance our top priorities before the Fund’s Annual Meetings in Istanbul in October, with a view to helping the world return as promptly as possible to durable prosperity and financial stability.”
Crisis Response

The Fund will strengthen the global financial safety net by taking steps to boost its resources further, strengthen its concessional lending capacity, and adapt its lending tools for low-income countries. It will also monitor and analyze the policy responses by member countries to cope with the impact of the crisis, consider the key issues that countries will have to deal with upon exiting from the crisis and ensure that Fund-supported programs enable countries to restore stability as effectively as possible.

Fund Resources and global liquidity

The Fund is seeking to expand and make more flexible the New Arrangements to Borrow (NAB) through discussions with members that are participants and potential participants in the NAB. At the same time, the Fund is working with members to ensure that recent pledges are turned into bilateral loan agreements and quickly brought to the Board for approval. In addition, the Executive Board will soon discuss documents to allow the Fund’s first issuance of notes to its members, or their central banks, which will also bolster the Fund’s capacity to provide timely and effective financial assistance to its members. Furthermore, the Executive Board will discuss proposals for expanding the Fund’s concessional lending capacity. The Board is also expected to consider a proposal by the end of June, to implement a general allocation of Special Drawing Rights (SDRs) to members in an amount equivalent to US0 billion.

Lending for Low-Income Countries

The recent doubling of access limits for concessional lending to low-income countries was already an important step forward. In the coming weeks, the Executive Board will further consider financing options to support a significant increase in subsidized lending to these countries. Further reform of the Fund’s lending framework for low-income countries will ensure that the spillovers from the global crisis do not roll back the hard-won gains in poverty reduction and economic stability that many poor countries have made in recent years. To that end, the Executive Board will discuss in July proposals to simplify and strengthen the lending facility architecture and financing framework for the poorest nations.

Monitoring and Policy Advice

As part of the Fund’s crisis engagement, it is crucial to ensure that the large number of Fund-supported economic programs are as effective as possible in helping countries weather the crisis and restore stability. In this context, the Board will have the opportunity to review the Fund’s early experience with crisis-related program engagement. Upcoming Fund economic reports will examine the path for the global economy and financial system out of the crisis. Key issues include the availability of trade finance, tax policy and exit strategies for countries that have invested heavily in crisis-related assets.
Building a Robust Global Financial Architecture

Enhancing Surveillance

The Fund is responding to the call to provide more effective and independent surveillance. It is working on an Early Warning Exercise (EWE) in conjunction with the Financial Stability Board to assess vulnerabilities to unexpected shocks and to draw connections to systemic risks. The Board will take stock of progress to date and discuss the next steps prior to the EWE’s formal launch at the 2009 Annual Meetings in Istanbul. The global financial crisis has also illustrated the need to examine issues that cut across systemically important countries as a means to achieve a more evenhanded dialogue with policy makers. The Board will also consider enhancements to make the Financial Sector Assessment Program more flexible, targeted and better integrated with surveillance.

Reforming the International Financial System

The Fund’s work program will also address the need for enhanced regulatory reform to keep up with innovations in the global financial system and also explore the stability of the international monetary system, including reserve currencies.

Governance and Quota Reform

Progress continues on governance reform at the Fund to enable the institution to further strengthen its legitimacy and effectiveness in fulfilling its responsibilities. The Executive Board will initiate work on the 14th general quota review to assess the appropriate overall increase in quotas, and to further realign members’ quotas with their weight in the global economy, with this review to be completed by January 2011, two years ahead of schedule. The Board will also prepare for the International Monetary and Financial Committee meeting in October a report on governance reforms—drawing on inputs such as the reports prepared on those issues by the G20, the Independent Evaluation Office, the Trevor Manuel Committee, and civil society.

“I firmly believe that reforming the IMF’s governance is critical not just for its legitimacy, but also to enable it to be a more effective leader in responding to unexpected global contingencies such as the current crisis,” Mr. Strauss-Kahn said.

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