07 October 2009

Washington — The annual meetings of the International Monetary Fund and World Bank ended in Istanbul amid calls for reform and reflection on the global economic crisis.

IMF Managing Director Dominique Strauss-Kahn told financial and monetary policymakers from the 186 members of the fund that global cooperation worked in stabilizing current conditions, and that continued cooperation can create the conditions necessary for a cycle of peace and prosperity.

“We stand at a defining moment,” Strauss-Khan said October 6. “We know from history that when the nations of the world come together to address common challenges in a spirit of solidarity, we can attain a virtuous cycle of peace and prosperity, and avoid a vicious cycle of conflict and stagnation.”

He called on the IMF to “seize this opportunity to shape the post-crisis world.” He said that no longer does a small group of advanced economies decide far-reaching global economic policies. In the past year the Group of 20 advanced and emerging economies has assumed a greater role in shaping global policies.

“It was the leadership of the G20 that harnessed the immense policy cooperation throughout the world,” Strauss-Kahn said. “We must build on this momentum.”

Strauss-Kahn said that the four “Istanbul Decisions,” which are a set of reforms aimed at reinventing the IMF, will become its focal point for the coming year. The first of the decisions calls for the IMF to develop a broader mandate before next spring’s Washington meeting that encompasses the whole range of economic and financial policies that affect global stability.

“In an era of high-volume and fast-moving capital flows that can extend to every corner of the world, we need a broader mandate,” he said.

The members also agreed to shift the fund’s voting structure by at least 5 percent from over-represented nations to under-represented nations by January 2011, which would give more say to emerging economic powers, including Brazil and China.

“This boosts our legitimacy and represents a significant down payment on our future effectiveness,” Strauss-Kahn said. “In this modern, globalized world, it no longer makes sense for global economic policy to be the concern of just a small group of countries.”

The IMF will also assess how to build on the effectiveness of its Flexible Credit Line and provide insurance to more countries as the lender of last resort. The aim is to determine whether enhancing its financing instruments and facilities might better help to address the demands from nations seeking lending.

OLD ORDER GONE

World Bank President Robert Zoellick said the bank is pursuing an ambitious program of reform to enable it to become more efficient and effective while also gaining more legitimacy with the countries it serves. He said the bank will expand its cooperation with the United Nations, the IMF, other multilateral development banks, donors and civil society.

Shareholders of the bank supported reforms to give developing countries at least 47 percent of the voting shares in the institution.

“The old international economic order was struggling to keep up with change before the crisis,” Zoellick said. “Today’s upheaval has revealed the stark gaps and compelling needs.”

Zoellick said it is essential for nations to embrace enhanced financial regulation and supervision to shift incentives from short-term returns to long-term, productive investment. In addition, the global economy needs multiple poles of growth, he said, beyond just adding nations such as China and India.

“To build multiple poles of growth, we need to remove bottlenecks and boost productivity through investments in infrastructure and energy, private sector expansion, and regional integration linked to open markets,” Zoellick said.

World leaders also need to commit to making growth sustainable, he added. More mechanisms are needed to protect the most vulnerable in the world from food, fuel and financial crises, which can reverse years, even decades, of gains, he said.