06 October 2009
IMF, World Bank Plan Way Forward for Global Economy
Washington — The world cannot return to a pattern of uneven economic growth that relies on consumer-led spending in one economy and export-led growth in others, U.S. Treasury Secretary Timothy Geithner says.
“We are now witnessing stabilization of the global economy and the beginnings of recovery,” Geithner said in remarks prepared for delivery October 6 at the International Monetary Fund (IMF) and World Bank annual meetings in Istanbul. His statement was read by acting Treasury Assistant Secretary Mark Sobel. “But we cannot be complacent. Conditions remain fragile.”
“The international community must implement its critical agenda to sustain the recovery and help create jobs, to strengthen regulatory frameworks, and to begin preparing cooperative exit strategies,” Geithner said.
Geithner called on the IMF to provide rigorous surveillance that will identify trends that could lead to the next unsustainable boom. Halting radical and rapid economic swings in the business cycle, from boom to bust, is a major objective of the Group of 20 (G20) major world economies. Broad swings create extremes that in turn create havoc with national and regional economies.
Under the new G20 framework, recently adopted at summits in London and Pittsburgh, the IMF must provide forward-looking analysis of whether the world’s major countries are implementing economic policies, including exchange rate policies, that are consistent with G20 objectives, Geithner said.
“The IMF will need to be a truth-teller,” Geithner said in the prepared remarks. “The World Bank will need to focus more on building resilience to crisis and foundations for prosperity.”
Geithner said that as the world emerges from the worst economic recession since the 1930s, the poorest will require strong and sustained support from multilateral development banks.
“As the centerpiece of the multilateral development system, the World Bank is best positioned to address challenges that require globally coordinated action,” he said. “The Bank must more actively prioritize work on three emerging global priorities: agriculture and food security, support in the most fragile environments, and facilitating the transition to a green economy.”
The United States supports efforts by the IMF and World Bank to broaden representation and enhance legitimacy, he said. The IMF is committed to achieving a 5 percent shift in IMF quota share to emerging, underrepresented countries by January 2011.
And the World Bank is committed to shifting at least 3 percent of the bank’s voting power to developing and transition countries by the 2010 spring meetings. However, World Bank President Robert Zoellick urged bank members to go beyond giving developing countries at least 47 percent of the voting shares of the institution, and raise it to 50 percent.
At an October 5 press conference, Zoellick said the World Bank Group has made progress on four measures that will: ensure developing countries get a bigger say in how the bank is run: ensure the bank has enough resources to meet its worldwide development goals; create a new facility to rapidly disburse grants and no-interest loans to the world’s 79 poorest countries; and put into effect the G20’s call for a $20 billion food security facility.
Food instability in more than 50 of the world’s poorest nations led to greater regional instability and the threat of violence, which the bank pledged to change.
“We may have broken the fall in financial markets, but we are still some way from a self-sustained economic recovery that provides more jobs, higher incomes and expanded opportunities,” Zoellick said.
Zoellick added that it remains uncertain when the private sector, the main producer of jobs, will kick in; nor is it clear who will replace the U.S. consumer as a source of demand in a still weak economy; and that while the global economy has shown renewal, it could just as easily stall again.
“These are difficult times for governments,” Zoellick said, “and all their budgets are stretched, yet [IMF Development] Committee members endorsed the pledge made by the G20 at Pittsburgh to ensure that the World Bank Group has sufficient resources.”
Over the coming months, the Bank Group will conduct necessary analyses of the International Bank for Reconstruction and Development and the International Finance Committee with the aim of a general capital increase, the first for the bank in 20 years, Zoellick said.
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