IMF, World Bank heads call for sweeping changes to world economic order

Addressing the opening of the International Monetary Fund and World Bank annual meetings in Istanbul yesterday, both IMF Managing Director Dominique Strauss-Kahn and World Bank President Robert Zoellick called for a major overhaul of the global economic system in the post-crisis era with a focus on strengthening the surveillance of world financial markets along with enhanced global cooperation among nations to tackle global economic problems. The new mandate of the two bodies could be most clearly seen in the words of Strauss-Kahn, who noted the "profound change" in the way nations interacted as demonstrated by the formal and informal international cooperation which he felt helped avert a repeat of the Great Depression. "In the face of crisis, countries came together to face common challenges with common solutions, focusing on the global common good," he said. He pointed to concerted efforts to implement stimuli around the world, which produced nearly 2 percent of the world's gross domestic product (GDP) last year, and the profound effect this had on avoiding a worse crisis. Echoing Prime Minister Recep Tayyip Erdogan's opening speech, Strauss-Kahn emphasized the fund's shifting focus to "multilateral surveillance." "The IMFC (IMF Committee) endorsees the G-20 proposal for the IMF to help with their mutual assessment policies," he said. "This represents a new kind of multilateral surveillance for us, and it fits well with our surveillance agenda, emphasizing macro-financial linkages and cross-country spillovers." Strauss-Kahn said he thought "we have turned the corner," and stressed that the global turnaround was no accident but came about by unparalleled economic collaboration. "And now, we stand at a defining moment," he said. "We know from history that when the nations of the world come together to address common challenges in a spirit of solidarity, we can attain a virtuous cycle of peace and prosperity and avoid a vicious cycle of conflict and stagnation." But he also warned, "We have come a long way, but the journey is not over. Coming out of Sunday's meeting, the IMFC has asked us to address four key reform areas: our mandate, our financing role, multilateral surveillance and governance." He described the new IMF mandate as the "Istanbul Decision." According to Kahn, the new mandate will "encompass the whole range of macroeconomic and financial sector policies that affect global stability," stressing that the crisis had little to do with current accounts and currency movements, the Fund's traditional focus. The new realities made it so that, in his words, "in an era of high-volume and fast-moving capital flows that can extend to every corner of the world, we need a broader mandate." In addition to calling for IMF need to build on the success of new instruments used by it to help countries in trouble, such as a flexible credit line (FCL), he re-emphasized that the Fund would be reshaped so as to represent the world's shifting power realities. "The IMFC also endorsed a big step forward on the governance front agreed by the G-20," he said. "This will shift quota shares toward dynamic emerging markets and developing countries by at least 5 percent from overrepresented to underrepresented countries. This will be done by January 2011. This boosts our legitimacy and represents a significant down payment on our future effectiveness." But perhaps the most clearly articulated realization of the shifting power balances came from the World Bank's Zoellick, who, addressing the audience, said, "The old order is gone. We should not waste our time and tears lamenting on it. Today we must build anew." Later in the speech he said, "The Bretton Woods system was forged by 44 countries at a time (1944) when power was concentrated in a small number of states. The great waves of decolonization were just stirring; the few developing countries were seen as objects, not subjects, of history. That world is long past. The new realities of political economy demand a different system." He called on the G-20 to fulfill the function of a steering group with a broader membership, fostering mutual interests without hierarchical or bureaucratic constraints. He warned, however, that the world is still far from being able to declare a decisive victory over the crisis.