Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey: IMFC Urges Consistent Approach to Financial Sector Reform
April 24, 2010
- Leaders say continued challenges should be tackled collaboratively
- Task of strengthening financial sector regulation, supervision incomplete
- Unemployment, mounting official debt, capital flows remain risks
The IMF’s policy steering committee urged a collaborative and consistent approach to reform of the international financial system to support the global economic recovery.
IMFC agreed to redouble efforts to forge collaborative, consistent approach for stable global financial system to support economic recovery (IMF photo)
IMF POLICY-SETTING BODY
“The global economy seems to be recovering. The worst is definitely behind us. But, we are not out of the woods yet. We see a strengthening of economic recovery, but we also see an unevenness in this recovery, unevenness within countries, and unevenness between countries,” said Youssef Boutros-Ghali, chairman of the International Monetary and Financial Committee (IMFC) of the Fund.
The IMFC said in a communiqué that problems in the financial sector were at the heart of the recent global crisis. “Strengthening financial regulation, supervision, and resilience remains a critical but as yet incomplete task. We agree to redouble efforts to forge a collaborative and consistent approach for a stable global financial system that can support the economic recovery.”
IMF chief Dominique Strauss-Kahn has warned that advanced economies, trying to plug loopholes in financial regulation, risk creating inconsistent regulatory regimes that result in fresh problems of coordination. “The rules of the game have to be almost the same or they have to be consistent,” he told reporters.
After a series of meetings, against a background of moves to provide international support for Greece, financial leaders said that signs of a strengthened world recovery were encouraging, but many challenges remained to be tackled collaboratively, including boosting job creation and keeping inflationary risks in check.
Greek program
Strauss-Kahn, speaking at a press conference on April 24, said negotiations with the Greek authorities were under way and details would be announced once they were complete.
But, in response to a question on his message for the Greek people, he said they should not fear the IMF. The purpose of the 186 member institution was to provide resources on behalf of the international community. “Greece and others should see the IMF as it is today.”
Boutros-Ghali said the IMF had changed in recent years, with emerging markets have a bigger say. “It’s a different institution,” he told reporters.
Next phase
Strauss-Kahn said the world faced several key issues as it moved into a fourth phase of the crisis—continued high unemployment, rising official debt, and the risk from increased capital flows to emerging markets.
He identified the phases of the crisis as 1. Initial panic; 2. Coordinated international response; 3. Relief when measures began to work; and 4. Rebuilding with recovery. He touched on three key issues for the IMF as the global economy moves into this rebuilding phase.
• Financial sector reform. Countries must coordinate to ensure consistency of regulation. “Coordination does not mean that everything has to be done the same everywhere because of the structure of the industry and integration is not the same, but when something is done, we have to look at not just the effect on an individual country, but also the consequence for the rest of the world to avoid any kind of a regulatory arbitrage.” The IMF would prepare a report on regulatory reform for its next meetings.
• Mutual assessment of G-20 economies. Ministers saw the results of an exercise to assess the current policies of G-20 countries designed to see if they were mutually supportive of recovery. Strauss-Kahn said the early results were quite “optimistic.” The Fund would provide a report and recommendations on the unemployment and public debt outcomes for the next G-20 leaders meeting in Toronto in June.
• IMF quotas and governance. Policymakers committed to completing governance and quota reform at the IMF before January 2011. The aim is to reflect the shift in world economic power toward dynamic emerging market economies through a redistribution for quotas—which reflect the contribution of each member to the Fund and the relatively voting power.
The Group of Twenty (G-20) industrialized and emerging market countries held meetings with the IMFC in Washington for the first time, strengthening the collaboration between the two groups. The Group of 24 developing countries also met to discuss responses to the global crisis and its aftermath.
The IMFC, which usually meets twice a year, advises the IMF on the direction of its work. The IMFC has 24 members who are central bank governors, ministers, or others of comparable rank and who are drawn from the governors of the Fund’s 186 member countries.