International Monetary Fund (IMF) Annual Meeting Washington DC, 23-24 September 2011

Date 26/09/2011

The International Monetary and Financial Committee (IMFC) met on 24 September 2011 in connection with the Annual Meetings of the IMF and the World Bank. The Swedish delegation included Governor Stefan Ingves, Deputy Governor Barbro Wickman-Parak, Deputy Governor Lars Nyberg, Finance Minister Anders Borg and Minister for International Development Cooperation Gunilla Carlsson.

 

The aim of the IMFC meeting was to discuss current international issues and to provide guidance on the institution’s activities. Sweden's stance on current IMF issues is determined in consultation with the constituency of Nordic-Baltic countries, of which Sweden is a part.

 

During the IMFC meeting, the following matters, in particular, were discussed:

The World Economic Outlook

A new feature at this IMFC meeting was that the conclusions of the IMF’s flagship reports the World Economic Outlook, the Global Financial Stability Report and the Fiscal Monitor were presented in a consolidated, multilateral oversight report. The IMF’s chief economist, Olivier Blanchard, and the IMF’s financial adviser, José Viñals, reported on the conclusions of this new consolidated report during the meeting. The central conclusion was that there has been a severe slowdown in world economic growth compared to the situation six months ago. Future prospects for global growth have also been revised downwards as governments, households and companies must now all tighten their finances at the same time.

 

In addition there is a crisis of confidence due to the negative impact of the widespread political uncertainty on the financial markets. Since the IMFC meeting in the spring, there has been a decline in global financial stability and in the appetite for risk. As a result of the weaker appetite for risk, there has been a flow of portfolio investment from the emerging economies to more secure assets.

 

Despite the fact that several industrialised countries have launched major fiscal policy tightening programmes, there is a long way to go before public finances return to a sustainable level. In some emerging economies, the threat of overheating continues to be a problem instead, as well as rising inflation, strong credit growth and increasing current account deficits.

 

The IMF’s view is that the fiscal policy challenges that lie ahead entail reducing central-government debt by presenting credible measures for the medium to long term. In the case of monetary policy, the central banks in the industrialised countries must keep policy rates low for some time to come and the undesirable side effects of low interest rates must be managed by introducing appropriate tools for macroprudential oversight.  The central banks should also be prepared to turn to unconventional methods.

 

The emerging economies, on the other hand, should tighten their policy rates and introduce complementary tools for macroprudential oversight as well as other means of reducing the effects of volatile capital flows. In addition, a range of other financial measures are required: the private sector in the industrialised countries must reduce its level of debt and in Europe the banks must be sufficiently well capitalised and be reconstructed when necessary. In the emerging economies, the focus should be on preventing the spread of vulnerabilities and on improving the resilience of the banks. Globally, the new regulations must be implemented as soon as possible and applied consistently in all countries.

 

Joint efforts are therefore needed on the part of all countries to promote global growth and improve financial stability. The most important thing is to restore confidence and enable a sustainable and balanced development in the period ahead.

 

The International Monetary System

The member countries agreed that the IMF should continue to analyse and illuminate potential risks and to improve its oversight of the financial markets. It was also stressed that the views of the IMF must have a greater impact.

 

There was also broad support for drawing up a strategy for the management of capital flows that takes into account the interests of the countries that capital flows to and those that capital flows from.

 

Work is also underway to review methods for strengthening the IMF’s crisis-prevention lending. The aim is to improve the IMF’s ability to put a quick stop to any systemic risks so that problems in one country do not spread and develop into a full-scale crisis.  The IMF is also developing principles for cooperation with regional financial arrangements, for example the European Financial Stability Facility (EFSF).