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 regions 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 Funds 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 didnt 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 sectors 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 years Group of 20 summits in London and Pittsburgh when leaders of those countries agreed to treble the IMFs 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 politicians touch, this is it.
As Strauss-Kahn heads into Octobers 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 Funds 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 Funds 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.