Global Policy Forum

International Monetary Fund members are grappling with the problem of how to make its advice more effective in an increasingly interlinked world where problems in one country can affect global financial stability, Dow Jones reports IMF Chief Rodrigo Rato said Monday.

The IMF and World Bank, celebrating their 60th anniversary, will hold their annual meetings in Washington Oct. 2-3. Shareholders will be looking at reforms aimed at better persuading member governments to tackle imbalances that are often politically difficult to resolve, Rato said in prepared remarks to be delivered before the Council on Foreign Relations in New York. For its part, the IMF is putting more resources into understanding the nature of capital account crises, banking system problems, and the impact of the political climate on a program. "We are working to integrate more fully our advice at the global, regional and country levels, recognizing that even if a country is not itself at risk, it may be contributing to global imbalances and placing the rest of the world at risk," Rato said. Still good advice isn't always enough, Rato said. The IMF must find ways to better influence policy, he said. "Broader efforts to reinforce the Fund's policy dialogue with its member countries, to enhance outreach to parliaments, media, and civil society, are also important," he said. "And, we are looking at how best to reinforce countries' reform efforts outside the context of a Fund financial arrangement through mechanisms to signal policy commitment."

At the annual meetings, IMF members will be considering new types of precautionary arrangements. "In this context we should explore how linkages between access to Fund resource and performance, including in the context of responsiveness to surveillance of adherence to standards and codes, can reinforce such incentives," Rato said. Since the large-scale IMF packages in the wake of the Asian financial crisis of the late 1990s, some IMF member governments and some IMF critics have urged the Fund to eliminate the so-called exceptional access programs. Rato disagreed, saying large aid packages had helped Mexico and South Korea recover quickly from crises.

AFX meanwhile adds Rato said the world's leading economies should take advantage of a benign global economic outlook to strengthen their domestic economies. The global economy is experiencing "relatively robust growth and low inflation," said Rodrigo Rato. "This relatively benign global outlook provides an important window of opportunity for further progress in addressing global imbalances and reinforcing the basis for more balanced and sustainable growth," Rato said. "This requires active efforts by the United States to reduce its fiscal and external deficits, and by the European Union and Japan to promote more vigorous growth through structural reforms." Rato, upbeat about the strength of global financial markets, cited progress in emerging market economies in reducing their vulnerabilities to financial shocks. "As a result, notwithstanding the recent tightening of U.S. interest rates policy and movements in oil prices, spreads on emerging market instruments have remained moderate," he said. In addition, economic growth in Africa "seems likely to be the strongest since the mid-1990s," he said.

Reuters further reports Rato said emerging economies, which have a growing stake in the global economy, should deepen progress in reducing economic weaknesses and set the stage for continued growth in productivity, job creation and poverty reduction. He said poor countries should quicken the pace of building a framework for growth and fighting poverty. The former Spanish finance minister said increased interdependence of economies and more dependence on capital markets meant the fund's role had become more vital in helping countries pursue policies that encourage domestic and global prosperity. Broader global changes, such as the increasing influence of emerging economies like China and India, and challenges of an aging population, mainly in industrialized countries, also had implications for the fund's work, he said.

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