G-20 Reaffirms Commitment to Resolve Crisis

Lagarde warns of further risks to the global economy

Progress in discussions on how to strengthen the international monetary system

G-20 commits to ensuring that IMF has adequate resources to fulfill its systemic responsibilities

Emphasizing the urgency of the situation, IMF Managing Director Christine Lagarde said risk perspectives have become more somber and the weak economic situation of advanced economies is now affecting emerging countries.

The G-20 nations, which represent more than 80 percent of the global economy, met in Paris October 14-15 under the auspices of the French G-20 presidency amid further turmoil in world financial markets, as euro area leaders continue discussions on how to decisively address the sovereign debt problems that have made Europe the epicenter of the current crisis of confidence.

Stopping contagion in Europe

G-20 Ministers called on the euro area to decisively address the current challenges through a comprehensive plan that involves further work to maximize the impact of the European Financial Stability Facility (EFSF). Euro area leaders have pledged to deal effectively with the crisis at the next meeting of the European Council on October 23.

Strong and credible medium-term consolidation can restore confidence and create space to accommodate growth in the short run, depending on country circumstances, Lagarde said. If countries implement adjustment programs, partners must support them.

She also emphasized the importance of boosting bank liquidity to avoid a deeper economic dislocation and ease bank funding strains. Capital buffers are needed to withstand further turmoil, boost confidence, and get credit flowing again—which in turn will boost growth and employment, she said.

Strengthening the international monetary system

As part of its work program, and working closely with the G-20, the IMF has been studying ways to strengthen the international monetary system. In their communiqué, the G-20 Ministers said they are taking concrete steps to build a more stable and resilient international monetary system both to help deal with the current stress and help promote longer-term stability.

On the issue of capital flows, the G-20 has now agreed on a set of “coherent conclusions” to guide countries on how to manage such flows. In emerging markets in particular, large and volatile flows have tended to exacerbate domestic booms and busts. The IMF started reexamining these issues soon after flows to...