Georgetown University Address: Rubin Stresses IMF's Central Stabilizing Role, Need to Update Global Financial Structure

• Pages: 23

Page 23

No single factor would likely have produced a financial crisis. While economies usually adjust in a relatively orderly fashion to market swings, in this case the combination of factors proved combustible. When these crises began, foreign investors started to withdraw capital, local companies sought to hedge hard currency exposures, exporters stopped bringing their export earnings home, and citizens moved their savings abroad. The international community has been involved in a major effort to focus countries on these underlying problems, and to assist them in addressing them. These issues have been a central focus of the IMF as well as of our interactions with these countries.

The program we have supported has focused on four key elements: supporting reform programs in individual nations; providing temporary financial assistance when needed; encouraging strong action by Japan and the other major economic powers to promote global growth; and fostering policies in other developing and emerging economies to reduce the risk of contagion.

First, and most importantly, our approach requires that these countries take the concrete steps necessary to reform their economies. These programs, which are designed with the IMF, address the specific causes of each nation's crisis and can be adapted as the situation changes. These are not austerity programs. These are primarily programs of structural and financial reform. It is the crisis and the ensuing loss of confidence-not the reform programs-that leads to economic hardships.

The second element of our approach is to support these programs of reform with temporary financial assistance. When a nation's financial stability is at risk, this money provides the breathing room for a nation to establish the conditions to restore economic confidence, attract private capital and resume growth.

The third element is to encourage the major industrial countries to act to strengthen their own economies and take the steps necessary to promote the strong economic and financial environment globally that can contribute to resolving the crisis in Asia.

Fourth, and finally, we have worked closely with the IMF to encourage other emerging markets to make policy adjustments to reduce their vulnerability to contagion from the countries now in crisis. The IMF is the right institution to be at the center of these support programs.With tremendous expertise and technical resources, the IMF has the ability to shape effective...