The IMF’s powerful policy board has pledged that the Fund will play a leading role in the international response to the financial crisis by taking “bold and coordinated” action to restore confidence and financial stability.
In a communiqué issued yesterday afternoon, finance ministers and central bank governors from the 24 leading advanced and emerging economies that make up the Fund’s International Monetary and Finance Committee (IMFC) resolved to “act decisively to tackle the dangers confronting the global economy”.
The IMFC called on the IMF to “play a key role in contributing to an orderly resolution of the current crisis and prevention of future crises.” To this end, they promised “a review of the adequacy of Fund resources”.
“We will do what it takes to prevent an escalation of the financial crisis we face in the weeks and months to come, and to avoid the prospect of a prolonged period of stagnation in advanced economies and weakness in the global economy,” IMFC chairman Tharman Shanmugaratnam said at a press conference.
There was “very strong recognition” of the gravity of the crisis and “very strong resolve,” to deal with it, said Tharman, deputy prime minister and finance minister of Singapore. “Everyone took responsibility, whether in the euro area, the United States or the emerging markets,” he stressed.
But doubt was cast on the communiqué’s ability to put a floor under the crisis. Former White House National Economic Council chairman Lawrence Summers said only concrete policy action would help calm frayed nerves.
“I don’t think the words ‘strongly support’ by the IMFC are independently likely to be regarded by market participants as being of great significance,” Summers told Emerging Markets. “What lies behind those words is something we will have a chance to find out in the weeks ahead.”
A partial meltdown in financial markets gathered pace last week amid widespread fears that no fresh initiatives to deal with the crisis were forthcoming.
Although the communiqué failed to outline specific policy actions, the IMFC pledged to review the resources the Fund had available to tackle the crisis.
The intervention came after widespread dismay yesterday at the failure of finance ministers from the G20 group of advanced and emerging economies to announce a strong action agenda, and calls for the IMF to play a leading role in a coordinated response.
IMF managing director Christine Lagarde stressed the unified nature of the IMFC initiative, saying that “there was a lot of coming together” at the meeting. “There was no finger pointing. It was about recognition of the problem and about [mutual] support,” she said.
The IMFC, which represents 50 advanced and emerging economies via “constituency” representation arrangements is not a policy-making body and its role is to “advise” governors of the 187 IMF member countries.
Despite the limited authority of the IMFC, the agenda it agreed yesterday is a “very meaningful” one, OECD secretary general Angel Gurria told Emerging Markets.
He said countries had agreed on “the gravity and urgency of the problem” .
“They are going to be strengthening the institutions where their cooperation can be expressed, and one of these is the IMF,” Gurria said.