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IMF outlines three principles to reshape the global economy in the post-crisis world

October 2, 2009: International Monetary Fund Managing Director Dominique Strauss-Kahn called today for policymakers to embrace three core principles to guide the global economy toward more sustainable and broad-based growth in the wake of the current crisis—sustained international policy cooperation, improved financial sector regulation, and a stronger international monetary system.

Mr. Strauss-Kahn, in a speech stressed that the first principal is maintaining the unprecedented policy cooperation observed during the crisis. The Group of 20 leaders have also provided the world with the tools to adapt global collaboration to the needs of the 21st century, he added. IMF governance reform will facilitate this cooperation at the multilateral level. Moving ahead with an IMF quota shift—towards dynamic, emerging, and developing countries from over-represented to under-represented—is key, he said.

The second principle is strengthened financial sector regulation and supervision, which is necessary to fix the mistakes that led to the crisis in the first place. Key priorities include widening the regulatory perimeter and taking measures to curb excessive risk-taking and leverage, including by raising the amount and quality of capital and liquidity buffers.

A strengthened international monetary system with a global lender of last resort is the third principle, the Managing Director underlined. The lack of an adequate insurance facility for the global economy has led many emerging markets to self-insure by building excessively large buffers of foreign reserves and created dynamics that “have contributed to ever-widening global imbalances, with damaging consequences for the sustainability of economic growth and the stability of the international monetary system.” The IMF has the potential to serve as an effective and reliable provider of such insurance—the lender of last resort—but its resources are currently limited relative to the precautionary demand for reserves, he said.

He stressed that “It is clear that we must make use of this historic window of opportunity to revamp the financial sector framework. The time is now to build a safer, more stable financial system that can support sustainable economic growth over the long term.”

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