(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
JS-755
The balance of risks to the global economy has improved since we met in Washington this spring. While uncertainties have eased and recovery is strengthening in some regions, we cannot relax. We must continue to strive for higher economic growth.
This is the message I delivered to my colleagues in Japan earlier this month, and in Europe over the summer. We must all work together to ensure a strong, broad-based, and sustained upturn in the global economy.
On the demand side, appropriate monetary and fiscal policies are already in place in many of the key economies. But the success of the agenda for growth will depend on improving economic structures that raise productivity and provide a lasting basis for a durable recovery in private sector activity. Important steps have been taken for instance to reduce marginal tax rates, reform labor markets, strengthen financial systems and stimulate investment. We now need to build on this progress. The rewards of taking decisive action now will be sizable in the long run.
The U.S. recovery is gaining momentum, and I expect growth to accelerate in the latter half of this year. In fact, a recent Wall Street Journal survey of economists predicts growth of 4.7% in the second half of this year.
Yet the global economy cannot continue to rely on the United States alone to power the global growth engine. Industrial countries must take additional action to address remaining structural impediments to long-term growth. Emerging markets, which are benefiting from benign external financing conditions, should seize the opportunity to consolidate reform. Finally, we all need to act to avail ourselves of the benefits of open trade with the international financial institutions helping as needed to build trade capacity and facilitate adjustment.
A Global Growth Agenda
Through sound advice and strong support for reforms, the IMF can help foster financial stability and promote economic growth. The IMF needs to focus on its core strengths, coordinating with the World Bank, other international institutions, and bilateral donors in order to achieve results.
Promoting Crisis Prevention and Resolution
The number and severity of crises in recent years has diminished, and flows into emerging marketsdebt have risen. Yet foreign direct investment is likely to fall to a seven-year low this year. Neither we, nor the IMF, can afford to be complacent. The IMF has taken some key steps in the last year, but more needs to be done.
The IMF must do a better job of analyzing vulnerabilities and predicting crises. Good work has been done to improve analysis of debt sustainability. Now the IMF should follow up on currency mismatches and balance sheet impacts. And the Fund needs to focus on providing a candid and fresh approach in all its surveillance activities.
Wider dissemination of IMF analysis is essential to achieving the goals of stability and growth. It will be critical that members and IMF management work together to strengthen IMF transparency, especially the publication of all exceptional access documentation and a separate justification of occasions of exceptional access. More information will help the market and public at large understand and respond to reforms, and greater transparency will make the IMF itself more accountable, and over time further enhance the quality of the analysis. I urge all countries to publish their surveillance documents.
Official resources are limited, and there will not be a quota increase in the foreseeable future. Neither large scale nor repeated access to IMF lending will itself solve any countrys economic challenges. The IMF made an important decision earlier this year by developing procedures to govern exceptional access to Fund resources. These rules make the role of the official sector in crisis resolution more predictable. We should now seek to raise the bar for lending standards, with the goal of reducing the number of IMF programs.
I want to reflect briefly on a key development this year that has made the debt restructuring process more orderly and predictable. Collective action clauses are now standard in internationally-issued sovereign debt. We commend the countries that have issued external bonds with these clauses. We hope that future issuers will follow this important trend in strengthening market practices.
Promoting Growth in Low Income Countries
The IMFs principal role in low income countries should be macroeconomic surveillance, monitoring and technical assistance. Many low income countries have attained macroeconomic stability.
The IMF will be considering its role in low income countries over the next few months. It is important for the Fund to support countries that have good policies in place. I want to challenge the IMF to more clearly define the scope and terms for its support to low income countries and to consider transforming PRGFs from loans to grants.
Finally, I want to underscore that the United States supports a strong role for developing countries and emerging market countries in the international financial system.
We also believe, however, that quotas should reflect economic weight and the ability to contribute to the financing of the IMF. As the world has changed, some countries are now under-represented, and some carry too much weight. There is merit in discussing potential changes, but we recognize that quota redistribution is only likely in the context of a general quota increase, and the Funds current ample liquidity does not require such an increase. To help developing countries enhance their participation in decision making, we have strongly supported measures to improve the capacity and influence of governments and their Executive Board representatives.
Assisting Iraq
The IMF must play an integral role in facilitating the reconstruction and recovery of Iraq. I look forward to next months meeting in Madrid as an opportunity for the international community to demonstrate its sustained commitment. The IMF should be prepared, expeditiously, to provide its expertise and financial support.
Combating Terrorist Finance and Money Laundering
Protecting the worlds financial systems from abuse by terrorists and money launderers protects our citizens. We have made good progress over the past 24 months, and this reflects to a significant degree the hard work of many of those attending this session. I especially want to commend the IMF, along with the World Bank and FATF, for their important and ongoing contributions in the fight against terrorist financing and money laundering, and I look forward to the AML/CFT assessments becoming a permanent part of the IFIs oversight and surveillance of financing systems.
Our successes, however, cannot blind us to the long road that remains ahead. We cannot yet say that we are fully denying terrorists access to the formal networks of international finance (or capital flows) and we cannot be satisfied even when we do. Remittances are an important source of income for many poor people. However, at times, the channels through which remittances flow lack the transparency of the traditional financial sector, rendering those channels vulnerable to abuse by terrorists and money launderers. We must work to reduce the risk of abuse of informal remittance channels by encouraging a further deepening of the formal financial system a win/win measure that will benefit developing countries and emerging markets. Above all, we must cut off terrorist financing at its source. Our next steps should include making national asset freezing regimes more effective, extending safeguards to informal financial sectors, addressing the inadequacies in our formal sectors that drive legitimate customers elsewhere, and ensuring that charitable donations go for worthy causes, not to support terror.