Sir,
I agree with Daniel Daianu’s general premise that the international economic order is changing fast. This means that the structures of international governance will have to change too. Here at the IMF, such essential transformation is already underway.
In particular, we are adapting to two seismic shifts which have rocked the world economic scene in recent years. First, the expansion and globalization of financial markets provoked an explosion of alternative sources of international finance, along with new financial instruments. Second, new economic powerhouses have emerged in Asia, Europe, Latin America and the Middle East, with widespread repercussions for all those actors on the international and national stages, including the IMF.
The current credit crisis is a clear example of the dramatic consequences of financial globalization. It began as a problem in a single sector in a single economy – the housing market in the US – but rapidly became a global predicament. A situation that at first only troubled certain specialized financial institutions soon impacted on the real economies of countries around the globe.
The IMF’s response to the changes brought about by financial globalisation is manifest in our activities. In our core work of monitoring and analysis, we increasingly emphasize the links between national economies and the international economy, along with the linkages between financial markets and the real economy. Understanding these inter-relationships is essential if we are to help our member countries to manage the current crisis and to benefit from global financial integration. We are also enhancing the multilateral and cross-country perspectives of IMF surveillance work and giving macro-financial linkages more analytical attention too.
Meanwhile, the emergence of new economic players is having a profound impact on the world economy and the global financial system. This is due both to the policies pursued by these countries and also the ways in which they manage their reserves, including Sovereign Wealth Funds. I believe that ensuring these states are heard properly in international forums is a major part of our multilateral and collaborative approach to global economic and financial issues.
To this end, IMF members backed a major reform of the Fund’s voting structure this year which, progressively, will rebalance the representation of dynamic economies, many of which are emerging market countries. The reforms aim to realign member countries' shares of IMF quotas with their relative weight and their role in the global economy. These reforms will also give poorer countries a greater say in running the organisation. The broad endorsement of this strategy by IMF members at our last Spring Meeting was the culmination of two years of negotiation.
The IMF is uniquely placed to provide a valuable forum for debate about global financial issues. Its universal membership means that emerging markets and the more advanced economies are all represented. One good example of the IMF’s role is the relatively new tool of Multilateral Consultations, which are designed to foster action-oriented debate and policy measures to deal with important regional or systemic problems. The first Consultations took place last year and gave China, the eurozone, Japan, Saudi Arabia and the US a forum to improve their understanding of global economic imbalances and to share views about how to reduce them while still sustaining growth.
mahmed@imf.org