INTERNATIONAL. The International Monetary Fund (IMF) must continue to adapt and innovate to keep abreast of global change and serve its 187 member countries still buffeted by the aftermath of the world economic crisis, said incoming Managing Director Christine Lagarde.
The former French finance minister, who took over as head of the IMF on July 5, said the Fund had a pivotal role to play in the global economy. The world still faced huge challenges after going through what she termed a “fragmented recovery.” Here is the full text of her interview.
IMF Survey online: Madame Lagarde, what are the biggest challenges facing the global economy?
Lagarde: Oh, we are not short of challenges. There are plenty, plenty of challenges. Let us not forget that we are just coming out of one of the biggest financial crises in centuries. The financial crisis that hit the entire world, including most of the advanced economies, back in late 2008 has left scars. We need to deal with that.
We dealt with the crisis as a matter of emergency, and the Fund did very well under its previous management. The proposals that were made at the time were absolutely to the point. It changed the doctrine of the Fund, and it was necessary to do so. We moved from crisis resolution, to stimulus, to what people call “fragmented recovery.” But we still have huge challenges ahead of us.
You have sovereign debt issues in most of the advanced countries. This is most acute in a monetary zone called the euro zone—which I’m very familiar with—but it’s not the only one. The sovereign debt issue is pretty much all over the place in the advanced economies, from Japan to the United States, and obviously epitomized in the European Union, and the euro zone in particular.
Then you have some risk of overheating in emerging economies, which generally comes with inflation. And pretty much all around the globe you have unemployment rising, or not resolved, and not abating.
So we have got lots and lots of issues which clearly put the Fund in a critical and pivotal role. If we look at the Articles of the Fund: what’s the purpose of the Fund? Economic stability. Well, we have so much instability around, whether you look at exchange rates, whether you look at debt, whether you look at economic cycles, whether you look at external account—all of that indicates instability. So we’ve got a lot to do.
IMF Survey online: What is the role of the IMF in helping its member countries tackle some of these challenges that you’ve mentioned?
Lagarde: The Fund plays a critical role and I see it as threefold. One is the role of surveillance—bilateral surveillance: traditional Article IVs; its multilateral surveillance; its spillover reports that we will be receiving shortly. [They should be] transversal [cross-cutting] as well, aggregated as far as possible, and they should be user-friendly. This what the Fund is known for. It has massive expertise. It has the largest, biggest, and most powerful brain power assembled together under one roof, and surveillance is one of the services that can be provided to the membership.
The second type of service that are rendered by the Fund is that of lending, supporting, and helping out countries that need a program because they are going through a difficult situation. It is a current account balance fix essentially. But [this role] is developing as circumstances change. Instruments are becoming more flexible, more adjusted to the particular set of needs and circumstances. It should continue that way.
And the third component of the services provided by the Fund has to do with the recommendations, the advice, the suggestions, the solutions proposed by the Fund in response to a specific request, for instance, by the Group of Twenty (G-20). I have firsthand experience of the G-20 as head of the Ministers of Finance and Governors of Central Banks of the G-20. We have great expectations from the Fund. We had—because I stopped a few days ago.
Clearly, whether it’s the international monetary system, whether it’s the issue of derivatives and commodities and the impact of commodity prices on the economic situation of the country—all of that requires the mass of talent that is very unique to the Fund.
IMF Survey online: The IMF has changed a lot in the past few years. In which areas do you think it should still continue to change and innovate?
Lagarde: For any institution to be alive and to be meaningful, it has to change. Change is life and the Fund, like any other institution, has to adjust.
Very important reforms have been conducted under Dominique Strauss-Kahn’s leadership and they were good reforms, and he did a very good job at that, whether it’s governance, whether it’s quotas, whether it’s voice, appropriate representation, taking special care of those countries that are underrepresented so that they become rightly represented, making sure that the overrepresented gave way to those underrepresented.
We need to complete that. We need to deliver. And the quota reform, for instance, has to be brought home. Each and every member has to deliver, and make sure that it’s approved by their respective national parliament.
We have to continue. We have significant changes taking place at the moment. We have emerging markets taking the lead in the economic growth of the world. We have this imperative of making it more sustainable, more balanced. Well, clearly we have to take that into account and make sure that the Fund is a good partner in those major adjustments.
© 2011 IMF