IMF-WORLD BANK ANNUAL MEETINGS
IMF Urges Global Cooperation to Meet 4 Key Challenges
IMF Survey online - October 7, 2010
- Global economy still fragile, recovery uneven, says Strauss-Kahn
- IMF says double-dip recession unlikely, need to do more on job creation
- Main goal is to achieve rebalancing of world economy
IMF Managing Director Dominique Strauss-Kahn outlined four key challenges for the global economy, urging advanced countries and emerging markets to revive their cooperation to avoid competitive currency adjustments and rebalance the still-fragile world economy.
Speaking at a press conference in Washington ahead of the IMF-World Bank Annual Meetings, Strauss-Kahn said that the main goal for the medium term was to achieve a rebalancing of the global economy to iron out disruptive strains that can lead to renewed crises.
“The recovery clearly is going on but, as everybody knows, it’s still very fragile. And it’s fragile partly because it’s uneven,” Strauss-Kahn told reporters. “When you look at Asia, when you look at South America, you see very high rates of growth and obviously for these parts of the world the crisis is over,” he said.
Africa was also seeing a return to something like 5 percent growth. But recovery in Europe was sluggish and the outlook in the United States was uncertain. “We probably need more information on the third and fourth quarter of this year to know where it is going,” he declared. But he said a double-dip recession, forecast by some commentators, was unlikely to materialize.
The Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group each year bring together around 10,000 central bankers, ministers of finance and development, private sector executives, and academics to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness.
Officials from the 187 members of the Fund and the World Bank are attending. Under the broader umbrella of the formal sessions, there will be a host of meetings of different official groups, including the Group of Twenty (G-20) advanced economies and emerging markets, the Commonwealth Finance Ministers, and the Group of Seven. There will also be meetings with civil society, academics, and the private sector.
Strauss-Kahn highlighted four challenges to be addressed by the officials gathering in Washington.
• Sovereign debt. Fiscal sustainability remains a problem for some countries, particularly those that entered the crisis with very high levels of debt. “So we are strongly in favor of medium-term consolidation, but it doesn’t mean that in the short term every country will have to tighten as much as possible. It depends a lot on their own situation and it is very country specific.” Where the recovery remains fragile and private sector demand is weak, support for demand is still needed.
• Jobless recovery. Just reviving growth is not enough. “We need growth with jobs. Growth without jobs doesn’t mean much for the man in the street. So obviously, for us, the crisis will not be over until the unemployment rate decreases significantly.”
• Financial sector reform. While a lot has been done to address improved regulation, particularly through the new Basle III accord, a lot more needs to be done on supervision and regulation of the financial sector, which was at the heart of the global crisis. In addition, Strauss-Kahn said the IMF supported moves to introduce taxation of the sector.
Global cooperation. The world got through the economic crisis through very close cooperation, but now the momentum was decreasing. One example of this is emerging competition between countries to adjust their currencies to gain an advantage. “What we all want is the rebalancing of the global economy, and this rebalancing cannot happen without a natural consequence of it, which is a change in the relative value of currencies.”
Reforming the Fund
Strauss-Kahn said that a key to addressing these issues was strengthening the legitimacy and governance of the IMF, including ongoing reform of the quota system through which members are represented at the IMF.
“The IMF has shown its relevance during this crisis, but there is still the question of its legitimacy.” Strauss-Kahn said that progress was being made and he was confident of meeting a January 2011 deadline for achieving a shift in representation toward more dynamic emerging markets, “which just reflects fairly the change in the global economy.”
Strauss-Kahn answered questions on a wide range of issues, including currencies, Greece, capital flows to emerging markets, Brazil, financial sector taxation, and Argentina.
The formal sessions of the meetings will be on October 8-10. But there will also be a range of seminars and other sessions.
At the heart of this dialogue is a Program of Seminars—two flagship seminars, followed by three ‘breakout’ session for each of them. This is a way to engage participants at the Annual Meetings—finance ministers and central bank governors, civil society, academics, and the private sector—in discussing the issues that are at the center of the world economic policy debate. But it is also a way to include parts of the membership and the broader public in this discussion in a way they did not have an opportunity to do before.