The IMF’s Executive Board has agreed on the Fund’s priorities for the period leading up to the IMF-World Bank Spring Meetings in April 2009, focusing on short-and longer-term consequences of the global financial crisis. This work program is in line with requests from the International Monetary and Financial Committee (known as IMFC, the IMF’s policy-steering committee) and the Group of Twenty leading industrialized and emerging market countries (G-20).
A main focus of the IMF’s efforts will be to ensure continued financial support and policy advice for the growing number of countries that are buckling under the strains of the financial crisis. But the IMF will also devote significant resources to understanding the causes of the financial crisis and identifying reforms needed to improve the international financial architecture.
The discussion of the IMF’s short-term priorities takes place against the backdrop of a worsening global economy. In its latest assessment, the IMF cut its forecast for global growth by ¾ percentage point to 2.2 percent for 2009. A growing number of countries are seeking financial assistance from the Fund, and new loans worth a total of $40 billion have been approved in record time for Ukraine, Iceland, Pakistan, and Hungary.
The IMFC sets the overall direction for the IMF’s work. But the work program, agreed by the Executive Board on November 24, has also been aligned with the outcome of the November 15 meeting of the G-20.
The G-20 has called for both immediate and longer-term actions to stabilize the financial system, stimulate domestic demand, help emerging and developing economies battered by the crisis, and strengthen the regulatory framework.
“The IMFC and the G-20 leaders have emphasized the central role of the Fund as a crisis responder and a developer of ideas,” IMF Managing Director Dominique Strauss-Kahn said. “We will take this mandate forward to help restore global financial stability and stimulate sustained economic growth.”
Strauss-Kahn stressed that the IMF will be working closely with other international institutions. One such partner will be the Financial Stability Forum (FSF), which plans to expand its membership to include emerging market countries. The IMF and the FSF have published a joint letter saying they intend to step up cooperation in key areas such as early warning exercises and improving supervision and regulation of the financial sector.
Providing crisis loans
One priority for the IMF in the coming months will be to ensure that it continues to provide fast assistance to emerging market and developing countries hit by the crisis, with conditionality tailored to the priorities of addressing the crisis while ensuring that vulnerable sectors of the population are adequately protected.
As the crisis spread, the IMF quickly established a new Short-Term Liquidity Facility (SLF) to help countries with strong fundamentals and domestic policies cope with short-term liquidity pressures arising from external market developments. The Executive Board now intends to examine other elements of IMF lending, such as the scope for innovation and further streamlining of both lending instruments and conditionality. It will also review access limits, maturities, and charges, and whether the IMF will need to supplement its resources.
The massive scale of the crisis and its costs took many people by surprise. In October 2008, the IMFC asked the IMF to take the lead in analyzing the complex chain of causes and effects that led the world economy into what may turn out to be worst recession since the Great Depression. The G-20 reaffirmed this call. Work will focus on:
Drawing lessons and recommending responses. The IMF is taking the lead in providing a comprehensive analysis of the causes of the crisis and lessons learned for macroeconomic policy and regulation. Informed by this analysis, the IMF is developing recommendations for policy responses, both on how to overcome the immediate crisis and address longer term challenges.
Improving early warning systems. The IMF is intensifying work on early warnings and the monitoring of systemic and country vulnerabilities. The FSF will be an important partner in this work.
Assessing impact on low-income countries. The IMF will monitor closely the impact on low-income countries of overlapping shocks caused by the global financial crisis and strained food and fuel prices. The Fund stands ready to support its low-income members with technical and financial assistance and will be examining whether it needs to adapt its policy advice and loans to better meet their needs.
With its near universal membership, core macro-financial expertise, and mandate to promote international cooperation, the IMF is prepared to participate fully in the overhaul of the rules governing financial markets.
The IMF will contribute to the G-20 working groups on how to enhance sound regulation and strengthen transparency, reinforce international cooperation and promote the integrity of financial markets, and reform international financial institutions.
While the IMF’s priorities are focused on the global financial crisis, work on governance reform and modernization will also continue. Strauss-Kahn encouraged member countries to finalize the domestic legislation needed to implement the quota and voice reforms and the new income model agreed in April 2008. The Committee on IMF Governance Reform, headed by South Africa’s finance minister Trevor Manuel, is expected to report by April 2009, and will provide further input into this process.