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Tarred by its role as the chief enforcer of austerity during the Asian financial crisis in the late 1990s, the International Monetary Fund spent much of the ensuing decade trying to repair relationships with Asian governments. So, Fund officials considered it no small coup when they co-hosted a major conference, dubbed Asia 21, with the South Korean government in July to showcase the region’s economic resurgence and consider the lessons that Asia can offer policymakers in troubled Western economies.

Winging his way back from Daejeon, South Korea, IMF managing director Dominique Strauss-Kahn took time to blog about the event and claim a new era in relations between the Fund and Asian governments. “A remarkable event took place that enabled the world to hear the voice of Asia,” he announced in a post on the IMF Web site. “Just as there is a new Asia, there is a new IMF.”

There is indeed a new IMF taking shape under the leadership of the charismatic Strauss-Kahn, a former French finance minister, and wooing Asia to trust the Fund’s analysis and expertise is just the latest step in his rebuilding of the institution.

[Video Caption: The IMF said Asia is leading the global recovery and global growth is likely beat its forecast of 3 percent this year. "Even though the recovery is stronger than expected, it is also very fragile, especially in advanced economies," Dominique Strauss-Kahn, managing director of the IMF told CNBC. Airtime: Wed. Jan. 20 2010 | 4:50 AM ET ]

When Strauss-Kahn arrived in November 2007, the Fund seemed to be fading into irrelevance: Developing countries didn’t need its money, and the big industrial powers routinely ignored its advice. But using his economic instincts and political acumen, the managing director, or “DSK,” as he is known from the way he signs his memos, moved quickly to restore the Fund to its role as a linchpin of international economic policy coordination and crisis management. The 61-year-old Frenchman was one of the first policymakers to call for government stimulus spending to counteract the slump, in January 2008, a stance that would eventually be adopted from Washington to Beijing. He waded fearlessly into the debate over the financial sector’s failings and made the Fund a significant player in regulatory reform of the global financial system. And he lobbied tirelessly for a major increase in IMF resources to deal with the scale of the worldwide economic crisis. His efforts were rewarded at last year’s Group of 20 summits in London and Pittsburgh when leaders of those countries agreed to treble the IMF’s resources, to $750 billion, and mandated the Fund to lead an ambitious economic surveillance program and develop innovative new lending schemes.

“The IMF is clearly back at the center of international economic policymaking, and you have to give a lot of the credit for that to Strauss-Kahn,” says Garry Schinasi, a former IMF official who is now a visiting fellow at the Brussels think tank Bruegel. “If there was ever a time the IMF needed a politician’s touch, this is it.”

As Strauss-Kahn heads into October’s annual meetings of the IMF and the World Bank in Washington, his agenda is as ambitious as ever. The Fund is playing a leading role in economic policy coordination, chairing a so-called mutual assessment process among the G-20 countries that seeks to foster more-balanced growth around the world and avert the risk of a fresh collapse. Building on the Fund’s role in supporting a €750 billion ($965 billion) European Union bailout of heavily indebted countries this spring, Strauss-Kahn is pursuing new ideas on how the Fund might work in the future with regional blocs like the EU or the Chiang Mai Initiative, a liquidity-pooling agreement among key Asian central banks. He and his IMF colleagues are preparing to unveil new insurancelike facilities that could disburse money quickly to crisis-hit countries. And above all, he is trying to pull off a long-promised reallocation of the Fund’s quota shares and voting rights to give more influence to rising powers like Brazil and China. If Strauss-Kahn and Fund officials manage to keep the momentum behind these initiatives going, they will be taken up by G-20 leaders at a potentially pivotal summit meeting in Seoul in November.

“Each of these initiatives and programs are unprecedented in their own ways,” says Domenico Lombardi, a senior fellow at the Brookings Institution in Washington. “But it is the potential for a breakthrough on the quota and voting right reforms that is probably the most relevant.”

This quartet of initiatives, if successfully completed, would amount to the most far-reaching remake of the IMF and the international monetary order since the original Bretton Woods system broke down in the early 1970s. In effect, they would push the Fund a step closer to becoming a true global lender of last resort, a role that economist John Maynard Keynes, one of the Fund’s architects, originally intended.

That would be more than enough to tax and test anyone’s leadership, even someone armed with Strauss-Kahn’s political skills. And on that score, as if there isn’t already enough drama and high stakes involved, Washington and Paris are both buzzing with speculation that the managing director may quit the Fund by the middle of next year to pursue a bid for the French presidency.

There would be no small irony if he did so. Strauss-Kahn campaigned unsuccessfully for the presidential nomination of his Socialist Party in 2006, losing out to former Environment minister Ségolène Royal. After conservative Nicolas Sarkozy defeated Royal in the 2007 election, he lobbied to win the IMF post for Strauss-Kahn, regarding it as a key position for France — and a convenient exile for his political rival. But Strauss-Kahn’s deft handling of the crisis, including winning a major role for the Fund in the EU bailout of Greece, has only enhanced his standing.

One of the biggest factors in the IMF’s revival is the ascendancy of the G-20, a collection of leading developed and emerging powers that has supplanted the Group of Eight as the premier forum for international economic policy coordination. As a larger body that is less susceptible to the dictates of Washington or European capitals and whose diversity makes consensus difficult to achieve, the G-20 needs an organization with the legitimacy and institutional capacity to support its work. That is a role for which the IMF, an economic and financial body with 187 member countries, is almost tailor-made.

The Fund’s first G-20 task is arguably its most challenging one: coordinating the mutual assessment process. The MAP, as it’s called, is a new peer review of the national economic policies of the G-20 countries, aimed a promoting “durable recovery with strong, sustainable, and balanced global growth,” in the words of the Pittsburgh communiqué. The intention is to avoid a repeat of the massive imbalances — a gaping U.S. current-account deficit and soaring surpluses in countries like China and Germany — that many economists believe contributed to the global financial and economic crisis.

The aim is noble, but skepticism of the MAP runs high. Most international policy coordination efforts have ended in tears, or been quietly abandoned, since the original Group of Five began meeting in 1975. Just four years ago, under Strauss-Kahn’s predecessor, Rodrigo de Rato, the IMF launched a high-profile multilateral surveillance exercise involving the U.S., the euro zone, China, Japan and Saudi Arabia in a bid to reduce global imbalances, only to have the process fizzle out a year later. In effect, Washington ignored the Fund’s recommendations that it take steps to boost the U.S. savings rate, and Beijing paid no heed to IMF arguments that the renminbi should appreciate.

This time around, hopes for the MAP received a boost when the Obama administration followed through on its Pittsburgh commitment and the U.S. became the first country to submit its policies to peer review by the Fund and the other G-20 countries. And with the MAP being one of the first major policy initiatives by the G-20, there is a lot at stake for the group’s own legitimacy. “This is surveillance at the highest level, and while it is a soft framework in that there is no obligation on the part of the individual G-20 countries, it is nevertheless unprecedented in its scale and objectives,” Lombardi notes.

After a first round of assessments, the IMF delivered its policy option scenarios to the G-20 leaders at their summit meeting in Toronto in June. Strauss-Kahn underscored the stakes involved when he told the leaders that “appropriate collective action could increase global GDP by 2.5 percent over the medium term.” The initial response, though, wasn’t encouraging. Summit participants clashed openly, with Prime Minister Stephen Harper, the meeting’s host; German Chancellor Angela Merkel; and new U.K. Prime Minister David Cameron urging quick action to rein in deficits while President Barack Obama, with support from Japan and India, argued that the policy emphasis should remain on stimulus for the near term. The leaders papered over their differences by calling on members to cut deficits in half by 2013, but to move cautiously on spending cuts so as not to derail the recovery. In the months since Toronto, the underlying problem appears to be getting worse, with the U.S. trade deficit increasing sharply in June while surpluses soared in China and Germany.

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