Statement by Secretary Timothy F. Geithner at the International Monetary and Financial Committee (IMFC) Meeting
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As we meet this weekend, we should recognize the recent historic accomplishments of the
countries gathered here. Two years ago, the world economy was in the grip of an economic
crisis on a scale not seen since the Great Depression. Together, we committed to and
implemented an aggressive, unprecedented response to the crisis. That response calmed markets,
stabilized and initiated reforms to our financial systems, and put the global economy on a path to
growth.
But we should also recognize that our work is far from done. As the IMF highlights in its current
World Economic Outlook, the global economy continues to mend. But we face a series of
challenges that require collective will and commitment to meet effectively. The most important
of these is how to strengthen the pace of growth and repair, and to do so in a way that provides
the basis for a more balanced—and therefore more sustainable—global recovery.
More balanced growth is fundamental
The IMF forecasts the world economy will grow at a respectable annual rate of around four
percent in 2011. Growth is very strong in many of the major emerging economies. In the major
advanced economies, however, output and employment are still substantially below pre-crisis
levels, and growth is now running at a pace not rapid enough to quickly repair the substantial
economic damage remaining from the crisis.
The greatest risk, therefore, to the world economy today is that the largest economies
underachieve on growth. We must continue providing well-targeted support for the recovery in
the near term even as we put in place plans to help ensure fiscal sustainability over the long term.
For the recovery to be sustainable there must also be a change in the pattern of global growth.
For too long, many countries oriented their economies toward producing for export rather than
consuming at home, counting on the United States to import many more of their goods and
services then they bought of ours.
The United States is doing and will do its part to achieve this adjustment towards more balanced
growth. We have taken steps to raise national savings. Private savings have increased
significantly. And we will bring down our fiscal deficit to a sustainable level as the recovery
strengthens. But as America saves more, countries overly reliant on exports for their own
growth will need to change their policies, or else global growth will slow and all of us will be
worse off.
Countries that chronically run large surpluses need to undertake policies that will boost their
domestic demand. And it is critical to see more progress by the major emerging economies to
more flexible, more market-oriented exchange rate management. This is particularly important
for those countries whose currencies are significantly undervalued.
Each of us has agreed that these adjustments are necessary to the future health and stability of the global economy, and yet global rebalancing is not progressing as well as we believe is necessary. We must collectively make this a priority.
Reforming the IMF
One of the IMF’s core functions is to undertake rigorous surveillance of the international monetary
system. In the current environment, the IMF has an important role to play to help ensure that
progress toward rebalancing strengthens and that the international adjustment process is
permitted to work. It is ultimately the responsibility of countries to act, but the IMF must speak
out effectively about challenges and marshal support for action. Meaningful reform of IMF
surveillance is a core challenge for the institution.
Specifically, the IMF must strengthen its surveillance of exchange-rate policies and reserve
accumulation practices. We recognize that precautionary reserve accumulation is appropriate to
a point and may well have helped several emerging market economies cope with the adverse
effects of the recent global financial crisis. However, excess reserve accumulation on a global
scale is leading to serious distortions in the international monetary and financial system, and is
inhibiting the international adjustment process. We look forward to the IMF’s upcoming discussion of reserve adequacy and urge the development of new reserve metrics. An upgrade of the analytical tools for evaluating reserve holdings is long overdue.
More broadly, the IMF must increase the candor of its surveillance. At the same time, the IMF
membership must embrace further transparency reforms, such as universal publication of Article
IV reports, so that IMF analysis can more freely enter the public domain.
On the governance front, we are now making progress toward agreement on a very important set
of reforms to create a stronger, more legitimate IMF. We look forward to reaching agreement on
a governance package that will give the fastest growing emerging economies greater weight in
the institution and a greater share of seats on the Executive Board. Quota reform should bring us
closer to the goal of achieving legitimate IMF representation based on countries’ economic
weight in the world. The quota review should also achieve an appropriate rebalancing between
the IMF’s quota and borrowed resources, including the New Arrangements to Borrow (NAB).
We want to make sure these changes go far enough in rebalancing both the rights and the
responsibilities of the members of the institutions. And for this reason, an agreement to
modernize the governance of the IMF needs to be accompanied with more progress by countries,
particularly the surplus countries, towards more market-oriented exchange rate policies and
policies that will reduce reliance on exports and strengthen domestic demand.
Finally, we welcome recent actions to strengthen the global financial safety net. The reform to
the Flexible Credit Line and the creation of the Precautionary Credit Line will give the IMF the
necessary tools to respond more quickly and forcefully to future crises.
