Monday, November 17, 2008

After G-20, Global Economy Turns a New Page

Sources: The International Monetary Fund, Transcript of a Press Briefing by Dominique Strauss-Kahn, IMF Managing Director, John Lipsky, First Deputy Managing Director, Caroline Atkinson, Director of External Relations; International Monetary Fund, Financial Sector Assessment Program (FSAP)

On Saturday, November 15th, IMF Managing Director Dominique Strauss-Kahn and First Deputy Managing Director John Lipsky shared their impressions of the G-20 meeting that took place that day in Washington, D.C. Their statements focused on how the IMF will proceed after the G-20 meeting and how, if at all, the IMF's role in the credit crisis will change in the coming months. Strauss-Kahn’s comments centered around two major ideas: first, that the international community is still experiencing a credit crisis, and second, that international leaders must take steps to reform international governance to prevent another crisis from taking place.

Strauss-Kahn expanded upon his first idea, that the global economy is still in crisis, by referring to the IMF's recent predictions that the global economy is going to perform even more poorly in 2009 than observers had initially thought. According to Strauss-Kahn, current economic conditions are the worst that the world has seen or contemplated in over sixty years. Though he briefly discussed the monetary and trade policy changes that could help countries survive the crisis, he advocated strongly for fiscal policy changes. To Strauss-Kahn, the key to finding our way out of the crisis is to change fiscal policies to help low-income populations increase their resources. In his view, these are the members of the population who will continue to be most affected by the crisis.

With regard to reforms and changes in governance, Strauss-Kahn recalled previous instances in which international leaders have called for a reform of the Bretton Woods system, but have not effected any change. He cited the Asian crisis as a period of time where there was much talk of reforming the system of international governance, but where major reforms did not result. Strauss-Kahn explained this trend of talk, but no action, as a result of the fact that leaders are concerned when crises are taking place, but turn to other policy matters as crises subside.

In his view, however, the current talk of changing governance is different because the G-20 leadership has taken affirmative steps toward changing governance as the crisis is taking place. In fact, between Saturday’s G-20 conference and the upcoming spring conference, a working group will work on proposals to alter the Bretton Woods system and the G-7, G-8, and G-20 system.

Finally, Strauss-Kahn predicted that the IMF's surveillance role is likely to increase. The IMF has structures called Financial Sector Assessment Programs (FSAPs) that allow the IMF to go into specific countries and evaluate their economies. Strauss-Kahn shared that on Saturday there was talk of making FSAPs mandatory to different countries. Interestingly, four of the twenty countries present at the meeting do not currently have FSAPs. Strauss-Kahn was quick to point out, however, that in order for FSAPs to become more prevalent, the IMF needs more funding. As countries, such as Japan, come forth with contributions, it will be interesting to see whether surveillance tools like FSAPs actually become more prevalent.

Discussion Questions:

1- Strauss-Kahn seems to think that the present crisis is distinguishable from other crises because leaders are taking affirmative steps to meet and discuss reforms. Do you agree that change is more likely to occur now than before?

2- Do you think that mandatory surveillance tools, such as FSAPs, are a good idea? Do you think that it is within the scope of organizations like the IMF to order mandatory surveillance of certain countries?

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