The Global Economy
Mr. de Rato noted that the global economy is still built on a robust foundation. Nevertheless, he cautioned that "The central question now is whether the global economy is at an inflection point. So far, it seems that growth will continue, although at a slower pace than in the past two years." The Managing Director added that "over the past few months, we have lived through an earthquake in the credit markets.... There is still a risk of aftershocks, and the full effects of the disruption we have already had will only be felt over time." Mr. de Rato urged the finance and economic policy makers attending the 2007 Annual Meetings to take action on already agreed policies to reduce global economic imbalances and to complete multilateral trade talks, and he underlined that potentially vulnerable emerging economies should prepare themselves for the risks associated with slower global growth.
Mr. de Rato underscored the importance of reflecting on the lessons from the financial crisis and of cooperating in applying those lessons learned. "We already know that we should not try to regulate crises out of existence: that would be like trying to ban earthquakes. But the weaknesses in our infrastructure that have been exposed need to be addressed. We need to make sure that regulatory infrastructure is strong enough and simple enough to handle crisis in a globalized world," he said. Summarizing the lessons from the financial crisis, the Managing Director highlighted the need to look for low-cost ways to improve transparency in credit markets; the need for supervisors and rating agencies to pay more attention to off-balance sheet exposures in their assessments of banking soundness and capital; the need for regulators to factor in their assessments of liquidity requirements the increased liquidity risk than banks face given their growing reliance on the securities' market for financing; and the need to improve consumer education and protection because "the main victims of the crisis so far have been those who were persuaded to buy houses they could not afford, and who are now losing their homes," Mr. de Rato said. He also highlighted the importance of multilateral cooperation on financial market issues, and the role the IMF could play in this. "The Fund has a global membership, which both provides a forum for multilateral discussions and gives authority to the outcome of those discussions."
The IMF and its Reform Agenda
Reflecting on how the IMF is evolving to face these challenges and others that globalization has brought, the Managing Director underlined the importance of the progress achieved on the reform of the organization, particularly on governance, surveillance and the IMF's finances.
On IMF governance and progress on institutional reforms, he said that there was "increasing convergence among members on key elements of a new quota formula and especially on the need for GDP calculated using purchasing power parities to play a role in the reform." He also underscored the progress in other fundamental elements of the governance reform, such as the consensus reached on the need for a shift in voting shares toward emerging and developing countries as a whole, and the agreement to increase total quotas by at least 10 percent, as well as protect the position of low-income countries by at least doubling basic votes. "Of course, the reform process now needs to be completed, and we should not underestimate the challenge involved or the commitment required. But I believe that members will rise to the challenge. You showed your commitment to reform in Singapore; and you showed it at this weekend's IMFC meeting. You can show it again," Mr. de Rato told the Board of Governors.
Turning to the progress on modernizing the IMF's surveillance work, he pointed to the decision adopted last June, which constituted the first major revision in the surveillance framework in three decades. "It reaffirms that surveillance should be focused on our core mandate — namely, promoting countries' external stability," he said. The Managing Director also highlighted the completion of the first Multilateral Consultation earlier this year, which he called "an important new tool for our members." The process of designing and reaching consensus on a new income model for the IMF is well advanced. "We now have complete acceptance of the need for a new model and substantial consensus on the details of that model.... Management and staff are ready to put forward different scenarios. I hope that the membership will also be ready to make the decisions needed to keep the institution on a sound financial footing," the Managing Director said. Responding to calls for the IMF to reduce expenditure, de Rato said that the Fund had "drawn up a budget which will cut expenditure by six percent over a three-year period."
Welcomes Successor and Thanks Staff and Management Teams at the IMF
"I have been privileged to serve as Managing Director for the last three and a half years, and I consider it to be one of the highest honors of my life," Mr. de Rato told the governors. In closing his address, Mr. de Rato welcomed his successor, Mr. Dominique Strauss-Kahn and the new IMFC Chairman, Mr. Tommaso Padoa-Schioppa. He also thanked the Management teams of the IMF and World Bank, the IMF Executive Board, and IMF staff, for their support and dedication during his tenure. "But I especially want to thank the staff of the Fund, whose dedication to the Fund and to its mandate is outstanding. Outsiders sometimes assume that the staff of international institutions are resistant to change. This is not true of Fund staff. Each time I have asked them to change they have risen to the challenge. Indeed they have gone further: they have themselves been the engine of change in the institution."
IMF EXTERNAL RELATIONS DEPARTMENT