By Steven K. Beckner

WASHINGTON (MNI) – The International Monetary Fund’s policymaking
body Saturday declared the commitment of the IMF’s member countries
to collaborate to produce “balanced and stable” economic growth and to
work toward financial regulatory reform that will be “consistent” among
countries.

The IMF’s International Monetary and Financial Committee, whose 24
members collectively represent 186 nations, also called for efforts to
reduce budget deficits and sovereign debts in a communique.

At a news conference following the meeting, IMFC Chairman and
Egyptian Finance Minister Youssef Boutros-Ghali said that, while the
global economy “seems to be recovering … we are not out of the woods
yet.” He said the recovery is “uneven” among the IMF’s 186 member
nations and suggested financial stability remains fragile and
vulnerable.

IMF Managing Director Dominique Strauss-Kahn, appearing alongside
Boutros-Ghali, said the world is entering a “fourth phase” in which
economies are recovering but at different speeds and face continued
problems, such as high unemployment and heavy debt burdens.

Strauss-Kahn said he had nothing further to say about negotiations
with Greece on a loan package to help that country ease its debt service
burdens until those talks are completed.

Both men stressed the need for the IMF to continue to reallocate
IMF voting rights among member countries to give a greater say to
developing and emerging market countries.

“Signs of a strengthening economic recovery are encouraging but
many challenges remain that need to be tackled collaboratively,” the
communique said. “We will continue to work to phase in country-specific
exits from stimulus, recognizing the diverse pace of recovery and
potential spillovers across countries and regions.”

“We remain firmly committed to implementing policies that are
collectively consistent with our goals for a balanced and stable global
economy, renewed job creation, and price stability, and to avoiding
protectionism in all its forms,” the statement continued.

“We are strongly committed to ensuring sustainable public finances
and addressing sovereign debt risks,” the communique went on.

The finance ministers and central bankers, including Treasury
Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke,
called on the IMF “to continue strengthening its monitoring of global
economic and financial developments and providing policy advice.” And
they welcomed the IMF’s support of the Group of 20’s so-called “Mutual
Assessment Process,” which is supposed to guide members toward “strong,
sustainable, and balanced growth.”

The IMFC communique declared that “strengthening financial
regulation, supervision, and resilience remains a critical but as yet
incomplete task.”

“We agree to redouble efforts to forge a collaborative and
consistent approach for a stable global financial system that can
support the economic recovery,” it said. “We support continued
efforts to map systemic risks and transmission channels, and look
forward to a report on addressing data gaps; we also support exploring a
possible voluntary financial data dissemination standard based on broad
consultation, while respecting country circumstances.”

“We look forward to discussing the work by the Fund on a range of
options on how the financial sector can make a fair and substantial
contribution to cover the burden of extraordinary government support,
while reducing excessive risk-taking, helping to promote a level playing
field, and respecting country circumstances,” the communique added.

The communique committed the IMFC members to work to complete a
review of IMF quotas by January 2011 to increase the voting rights of
developing countries.

Boutros-Ghali said there are signs that the recovery is
“strengthening” but said there is “unevenness” and “weaknesses.” He said
market confidence also remains vulnerable to negative developments.
Without referring directly to the Greek debt crisis, he said
sovereign debt issues pose a threat to stability.

Strauss-Kahn outlined the challenges facing the world as it emerges
from financial crisis and recession. He said the world has gone through
three phases and is now entering a fourth.

The first phase, he said, was the “panic” that ensued after the
September 2008 collapse of Lehman Brothers. The second, was when Group
of Seven leaders agreed in London on a coordinated set of actions and
stimulus measures and the IMF’s lending resources were beefed up.

Next came “a kind of relief” and a belief in most countries that
“the crisis is behind us, that recovery is at the corner of the street,”
said Strauss-Kahn.

At this third stage, although the recovery proved stronger than
expected, Strauss-Kahn said the IMF warned that “We shouldn’t lose any
kind of caution” but “should take into account all of the downside
risks.” Although “a double dip (recession) was not (the IMF’s)
baseline,” he said the IMF warned that “some trail risks should be taken
into consideration.”

Now, in the “fourth phase,” the IMF chief said there is a growing
awareness that “recovery is here” and is “faster in some parts of
world,” such as Asia, but “more sluggish in other parts of the world,
especially the European Union, Japan also.”

Even if recovery is underway, Strauss-Kahn said countries “really
have to take into consideration the downside risks that may arise.”

He said the “most important area (of risk), of course, is
unemployment, which is still rising in some countries” in the
industrialized world.

The second area of concern, he said, is “the heavy burden of debt
in advanced countries.” The third is “the question of capital flows and
inflows into emerging markets,” creating “the risk of bubbles.”

Following these phases of “panic, action, relief” and the “phase of
rebuilding,” Strauss-Kahn said there needs to be a “rebuilding of
financial institutions” to “try to make them more effective:” and
“prevent the likelihood of any crisis in the future.”

He said there are three main areas where change is needed:

First, in the area of financial sector reform, he called for
international “coordination.” He said “the rules of the game have to be
the same or (at least) consistent.”

“It doesn’t have to be done the same way everywhere … but when
something is done we have to look at the consequences for the rest of
the world” and “avoid regulatory arbitrage,” he said.

Strauss-Kahn said he gets “this strong sense of stronger demand for
coordination and (a need to) work together.”

Secondly, he said the IMF will do as the G-20 requested in
Pittsburgh and pursue a “multilateral assessment program” to help
countries achieve “balanced growth.

He said initial assessments have led to “optimism” in various
countries, but he said they “may be a little too optimistic.”

He said the IMF will provide G-20 leaders recommendations on
dealing with the unemployment and debt problems at their June meeting in
Toronto. He said the goals is to raise countries’ growth potential.

The IMF managing director said “the third area where
multilateralism has been strong is IMF governance and quotas.” He
said strong commitments were reached Saturday morning “to complete the
shift in quotas and also governance reforms by the end of the year.”

“That’s very important,” he said, adding, “it’s mostly a political
question.” He said those reforms will only be achieved “on the basis
of political will.”

Asked what message he would like to send to the Greek public as the
IMF negotiates a loan package with Greece rumored to be about $30
billion, Strauss Kahn said, “Greece shouldn’t fear the IMF … .We are
there to try to help them.”

Greeks “should see the IMF as it is today, as a kind of cooperative
organization” that strives to “work together to help those in trouble
… . Today Greece, tomorrow maybe another one. … The IMF is trying to
provide advice on behalf of the entire international community.”

Boutros-Ghali said the IMF has changed since the 1980s and 1990s
when he said there was “a stigma” to borrowing from the Fund. He said
the IMF has jettisoned its old philosophy of only making loans to help
countries deal with their balance of payments problems with little
regard for their other difficulties.

** Market News International Washington Bureau: 202-371-2121 **

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