Earlier this week, Horst Kohler, Managing Director of the International Monetary Fund in giving a preview of the Spring Meeting of the International Monetary and Financial Committee (IMFC) of the IMF took the opportunity to report on key elements of the IMF’s activities going forward. In particular, he spoke on the Fund’s role in promoting sustained growth and international financial stability.
Mr. Kohler indicated that there is cause for optimism in terms of the global outlook. He said, *”A recovery is under way now in the United States and this is already beginning to have a positive impact on the economies in other regions.”* (Click onto Special Reports on the left for the World Economic Outlook Report). He pointed out the need to shift attention to underlying imbalances, noting that vigilance and a firm policy hand would be necessary to make the recovery robust and more dynamic.
While the advanced economies have a main responsibility to promote a shift in policy focus from short-term considerations to tackling decisively these underlying problems, emerging markets and low-income countries must take note of an important lesson learned from the worldwide slowdown in 2001. That is, *”Good policies pay off “*. Mr. Kohler said that countries with sound fiscal and monetary policies and persistence with structural reforms weathered the storm better than others and have demonstrated that it is possible to decouple from contagion. He continued, *”They should stay the course. All together, the global economy and the international financial system have demonstrated a remarkable resilience in 2001.”*
Addressing the issue of globalisation, the IMF Managing Director felt that there is a need for more balance between debt and trade expansion.
He said, *”The expansion of global capital markets needs to be better anchored in stronger trade integration and thus growth in debtor countries.”* Since the late 1980s the degree of integration of developing countries as a group into global capital markets (measured by foreign assets and liabilities as a ratio to GDP) doubled, while trade openness (measured as the ratio of exports and imports to GDP) has increased relatively little.
Increased integration of economies is a must to foster growth in the global economy, according to Mr. Kohler. Better trade opportunities for all and the expansion of trade must now become the centerpiece for a strategy to promote sustained global growth and truly shared prosperity.
The IMF is concentrating increasingly on the “soundness of financial sectors” in member countries and on the assessment of developments in international capital markets. To this end, the Fund is focusing better on priorities and giving room to “ownership of reforms” by the countries themselves. It also has intensified its cooperation with other international institutions, particularly the World Bank.
A Financial Sector Assessment Program (FSAP) for The Bahamas is expected to be completed this year. The FSAP is a joint IMF and World Bank initiative aimed at increasing the effectiveness of efforts to promote the soundness of financial systems in member countries.
Mr. Kohler pointed out that sound institutions and good governance have been seen as crucial for sustained growth and financial stability, and the Fund recognises that it has to be more realistic about what it can influence by providing money. *”We must bear in mind that to resolve homegrown problems no money in the world can substitute for self-responsibility and political unity in a society,”* he said. The IMF has been engaged constructively on issues such as the promotion of corporate governance and accounting principles.
Strengthening IMF Surveillance and Crisis Prevention
The IMF sees “surveillance” as the major vehicle in the strengthening of crisis prevention. Its Executive Board has undertaken a major review of this role, and there is agreement that further strengthening the effectiveness of surveillance has two main aspects: better policy advice and greater impact. One of the IMF’s objectives is to encourage member countries – advanced and developing economies – to take early action to address emerging problems and imbalances. Vulnerabilities and risks to the global economy and financial stability do not originate in emerging markets alone but from the major economic and financial centres as well.