But he warned that the crisis is not over and that unemployment would cast a long shadow over the recovery. “Growth resuming is one thing, but it doesn’t mean that the crisis is behind us.”

In its latest forecast for the global economy, the IMF says economic activity worldwide will expand by about 3 percent in 2010, after contracting by 1 percent in 2009.

Strauss-Kahn said that unprecedented collaboration during the crisis had helped to avoid a global financial meltdown.

G-20 sets the stage

He urged policymakers from the IMF’s 186 member countries gathering in Istanbul, Turkey, to use the meetings to build on this collaboration to help reshape the post-crisis world, and strengthen forces for peace by reducing economic instability. Leaders of the Group of 20 (G-20) industrialized and emerging market countries had made a start at their summit in Pittsburgh on September 25 and the IMF would become the machinery to make this collaboration work.

With the G-20 framework adopted in Pittsburgh, the IMF would assist in the mutual assessment of economic policies between nations. And he stressed that the historic shift in country representation at the IMF proposed by the G-20 toward dynamic emerging markets and developing countries by 2011 would make the IMF more legitimate and hence more effective. By reinforcing the financial credibility and legitimacy of the IMF, “this annual meeting may be the starting point of a new IMF.”

Strauss-Kahn saw several immediate policy challenges:

In terms of reshaping the post-crisis world, Strauss-Kahn set out three principles to help guide the world toward more sustainable and broad-based growth:

Lender of last resort

In a later speech at Istanbul’s Ҫıraǧan Palace entitled “Making the Most of an Historic Opportunity,” Strauss-Kahn elaborated on his proposal for a strengthened international monetary system with a global lender of last resort.

The lack of an adequate insurance facility for the global economy has led many emerging markets to self-insure by building excessively large buffers of foreign reserves and created dynamics that “have contributed to ever-widening global imbalances, with damaging consequences for the sustainability of economic growth and the stability of the international monetary system.” The IMF has the potential to serve as an effective and reliable provider of such insurance—the lender of last resort—but its resources are currently limited relative to the precautionary demand for reserves, he said.

“As we take on the challenge of reshaping the global economic and financial framework, we should keep our key objective firmly in focus: namely to obtain growth that is balanced, and that can be sustained. We must find ways to move beyond the costly boom and bust cycles that have been the hallmark of recent decades.”

Financial sector contribution

At the press conference. in response to a question, Strauss-Kahn said the IMF would look into suggestions that the financial sector should contribute to a type of insurance scheme to cover the risks that the financial sector creates. “Considering that the financial sector is creating a lot of systemic risk for the global economy, and that it is just fair that such a sector would pay some part of its resources to help mitigate the risks that they are creating themselves, having some money coming from the financial sector to create a kind of fund for insurance or funding for low-income countries is something that we are going to consider,” Strauss-Kahn said.

He said he had asked John Lipsky, the IMF’s First Deputy Managing Director, to prepare a report in response for the G-20 on the issue. “It is widely accepted that deposit insurance should be funded by a tax on the banking system,” said Lipsky. “This can be viewed as a mandatory insurance plan. In the wake of the current crisis, it is appropriate to consider the same issues more broadly across the financial system.” The IMF’s report would cover how potential mitigation costs could be borne and whether it was right to think about specifically charging the financial sector.

At the start of the press conference, he expressed sympathy for victims of natural disasters in Asia and the Pacific, including the earthquake in Indonesia, and storm deaths in Laos, Cambodia, Vietnam, the Philippines, Tonga, and Samoa.