Preparing for a Postcrisis World

• Author: John Lipsky
• Position: First Deputy Managing Director of the International Monetary Fund
• Pages: 29-31

Page 29

Assessing the IMF’s role in the future international financial architecture

If current plans are implemented as anticipated, the postcrisis world is likely to be one characterized by enhanced multilateralism, greater policy coordination, and a more effectively regulated financial system. In the wake of the April summit of the Group of Twenty (G-20), the IMF is set to play a key role in this new global environment and is working to ensure that it has the tools and resources to fully meet the challenges this new role implies.

THE global financial crisis presents an unprecedented challenge that calls for—and has in many ways already produced—an unprecedented response. Countries have acted together in ways that have been innovative and effective. This joint action has been underscored by the new G-20 process and was embodied in the novel Leaders’ Summits in November 2008 and April 2009. These meetings were both substantive and symbolic—with important commitments on the part of G-20 industrialized and emerging market countries to cooperate more closely on macroeconomic and financial sector policies.

The IMF has found itself at the center of the new international agenda. In particular, it has been recognized broadly that systemic changes are needed if we are to maintain the benefits of an open and integrated global economy, ensure that these benefits are broadly shared, and limit the risk from future crises. The two Leaders’ Summits generated key commitments to enhance global macroeconomic policy collaboration, to reinforce financial sector regulation—including by broadening the perimeter of regulation and strengthening cross-border cooperation— and to refrain from protectionism in both trade and financial policies.

In this context, the global community is looking to the IMF for leadership in several key areas. But what precisely will the IMF’s role be in the postcrisis international financial structure? And what changes are needed to ensure that it can succeed in its new and expanded role?

The tools for success

Since its founding, the IMF has evolved along with the world economy. In particular, major moments of international macroeconomic stress—for example, the end of the Bretton Woods exchange rate regime and the collapse of COMECON (the Council for Mutual Economic Assistance of the former Soviet Union)—have led the IMF into new territory. Despite this evolution, it had become increasingly clear that the IMF lacked some of thePage 30 policy tools needed to be fully effective, especially in crisis prevention. The IMF’s tool kit was developed during a period when financial markets were dominated by banks, sovereign debt constituted most international debt flows, and securitized financing was in its infancy. But as we know, cross-border private capital flows have grown explosively in recent years, intermediated by increasingly sophisticated financial technology. Financial integration also has deepened across countries, accompanied by a complex web of spillovers between the real economy and the financial sector. These developments helped fuel an...