WASHINGTON, DC – When world leaders gather in Pittsburgh for the G-20 summit, they will take stock of the impact of the stimulus measures undertaken so far and discuss how to coordinate an orderly exit from those measures. They will need to strengthen international guidelines for capital requirements for large multinational banks and address the perverse financial incentives that led to irresponsible risk-taking in the financial sector. But the most lasting imprint they could leave is to give the International Monetary Fund a broader mandate after this crisis is over.
The IMF’s relevance has greatly increased during the crisis. It successfully contributed to a coordinated fiscal and monetary stimulus, which helped avert a cyclical meltdown. Its resources have tripled, enabling it to come to the rescue of countries as diverse as Iceland, Pakistan, and Ukraine, which were cut off from international capital markets. And the Fund has assisted low-income countries with large loans at unprecedented zero interest rates.
The G-20 has shown leadership in providing the political and financial backing for these changes, and the IMF has responded swiftly. There is, however, a genuine risk that the political momentum will dissipate as the world economy slowly recovers.
It would be a big mistake to let that happen. This crisis has shown that economic interdependence has grown to such an extent that policy coordination is unavoidable. The IMF should be given a clear mandate that would give it the political clout to help prevent such crises from recurring.