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06 July 2011

Lagarde: IMF must continue to adapt


The former French finance minister, who took over as head of the IMF on July 5, said the Fund had a pivotal role to play in the global economy. The world still faced huge challenges after going through what she termed a "fragmented recovery".

Here is the full text of her interview:

IMF Survey online: Madame Lagarde, what are the biggest challenges facing the global economy?

Lagarde: Oh, we are not short of challenges. There are plenty, plenty of challenges. Let us not forget that we are just coming out of one of the biggest financial crises in centuries. The financial crisis that hit the entire world, including most of the advanced economies, back in late 2008 has left scars. We need to deal with that.

We dealt with the crisis as a matter of emergency, and the Fund did very well under its previous management. The proposals that were made at the time were absolutely to the point. It changed the doctrine of the Fund, and it was necessary to do so. We moved from crisis resolution, to stimulus, to what people call "fragmented recovery". But we still have huge challenges ahead of us.

You have sovereign debt issues in most of the advanced countries. This is most acute in a monetary zone called the eurozone—which I’m very familiar with—but it's not the only one. The sovereign debt issue is pretty much all over the place in the advanced economies, from Japan to the United States, and obviously epitomised in the European Union, and the eurozone in particular.

Then you have some risk of overheating in emerging economies, which generally comes with inflation. And pretty much all around the globe you have unemployment rising, or not resolved, and not abating.

So we have got lots and lots of issues which clearly put the Fund in a critical and pivotal role. If we look at the Articles of the Fund: what’s the purpose of the Fund? Economic stability. Well, we have so much instability around, whether you look at exchange rates, whether you look at debt, whether you look at economic cycles, whether you look at external account—all of that indicates instability. So we’ve got a lot to do.

IMF Survey online: What is the role of the IMF in helping its member countries tackle some of these challenges that you’ve mentioned?

Lagarde: The Fund plays a critical role and I see it as threefold. One is the role of surveillance—bilateral surveillance: traditional Article IVs; its multilateral surveillance; its spillover reports that we will be receiving shortly. [They should be] transversal [cross-cutting] as well, aggregated as far as possible, and they should be user-friendly. This what the Fund is known for. It has massive expertise. It has the largest, biggest and most powerful brain power assembled together under one roof, and surveillance is one of the services that can be provided to the membership.

The second type of service that is rendered by the Fund is that of lending, supporting, and helping out countries that need a programme because they are going through a difficult situation. It is a current account balance fix essentially. But [this role] is developing as circumstances change. Instruments are becoming more flexible, more adjusted to the particular set of needs and circumstances. It should continue that way.

And the third component of the services provided by the Fund has to do with the recommendations, the advice, the suggestions, the solutions proposed by the Fund in response to a specific request, for instance, by the Group of Twenty (G20). I have firsthand experience of the G20 as head of the Ministers of Finance and Governors of Central Banks of the G20. We have great expectations from the Fund. We had—because I stopped a few days ago.

Clearly, whether it’s the international monetary system, whether it’s the issue of derivatives and commodities and the impact of commodity prices on the economic situation of the country—all of that requires the mass of talent that is very unique to the Fund.

Full interview


© International Monetary Fund


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