The rise in world oil prices during 2000, weaker equity markets, a slump in the high-tech sector—especially in the United States—and continued difficulties in the financial and corporate sectors in Japan are among the factors that have dampened world economic growth in 2001. Global output growth is now projected to come in at slightly less than 3 percent, down from almost 5 percent in 2000. Although short-term prospects have worsened significantly during 2001, the most likely outcome remains a relatively mild and short-lived slowdown, with growth recovering in 2002–03. Nevertheless, there are significant downside risks to this scenario, including those associated with the external imbalances of the United States and some other major countries; still richly valued equity markets in many countries; and the financial difficulties of some emerging market economies.
IMF at a glance
Board of Governors
Promote international monetary cooperation.
Facilitate the expansion and balanced growth of international trade.
Promote exchange stability and maintain orderly exchange arrangements among member countries.
Assist in establishing a multilateral system of payments in respect of current transactions between member countries as well as in eliminating foreign exchange restrictions that hamper the growth of world trade.
Make available to member countries the IMF’s general resources on a temporary basis to enable them to correct balance of payments difficulties without resorting to measures that would harm national or international prosperity.
Shorten the duration and lessen the degree of disequilibrium in the international balances of payments of member countries.
Surveillance, or appraisal of its members’ macroeconomic policies within the framework of a comprehensive analysis of both the general economic climate and each member’s policy strategy.
Financial assistance, in the form of credits and loans to member countries with balance of payments problems, to support adjustment and reform policies.
Technical assistance, consisting of IMF expertise and financial support for member countries in several broad areas, including design and implementation of fiscal and monetary policy, institution building (such as central banks and treasuries), collection and refinement of statistical data, and training of government officials.
In the United States, growth is expected to pick up in the second half of 2001 as the earlier easing of policies takes effect. Japan, suffering its fourth recession in the past decade, needs both supportive macroeconomic policies and continued structural reform, including in the banking sector, to foster self-sustained recovery. In Europe, economic growth has also slowed more markedly in the euro area than projected earlier, in spite of the support to the traded sector provided by the weakness of the currency.
Events in several emerging market economies this year—Argentina, Brazil, and Turkey—have made it clear that the risk of financial crisis is still very real. Argentina, suffering from a three-year recession, recently passed a package of fiscal adjustment measures to ease financial pressures and allay concerns about its ability to service its external debt. Neighboring Brazil has been affected by the regional difficulties and has tightened its fiscal policy to address the problems of a weakened currency, higher interest rates, and slower growth, which have exacerbated its own debt burden. After suffering a crippling financial crisis, Turkey has adopted a comprehensive strategy of bank restructuring, fiscal consolidation, and structural reform and is making good progress in addressing its economic ills.
During the year, the IMF worked to help ease the financial pressures in these countries and, together with the World Bank, to help address the problems of its poorest members.
Change and reform at the IMF
As the world economy has gone from boom to gloom, the IMF—watchdog of the international monetary and financial system—has undergone noteworthy changes. In the course of 2001, First Deputy Managing Director Stanley Fischer and two senior-level staff members announced their intention to leave: Jack Boorman, who had headed the Policy Development and Review (PDR) Department since 1990; and Economic Counsellor and Research Department Director Michael Mussa. Fischer’s replacement is Anne O. Krueger, former chief economist at the World Bank and a trade expert. The first woman to serve on the IMF’s management team, Krueger assumed her responsibilities on September 1. Timothy Geithner, a former undersecretary of the U.S. Treasury, will take over PDR in November; and Harvard University’s Kenneth Rogoff assumed control of the Research Department on August 2. Another new appointment is Gerd Häusler, former chairman of Dresdner Bank’s investment-banking arm, who became head of the IMF’s newly created International Capital Markets Department on August 9.
With this new team in place, Köhler will continue his efforts to reform the IMF, based on the vision endorsed by member countries at the IMF’s Annual Meetings in Prague in 2000. Among his goals is to refocus the IMF on its core responsibility, especially on its role of guardian of international financial stability. To this end, IMF staff will be undertaking further work on the development of early warning systems for financial crises. The creation of the International Capital Markets Department is intended to deepen the IMF’s understanding of financial markets and its ability to identify crisis symptoms early enough to address them effectively. The aim of early warning systems is not to publicize a country’s vulnerability, which could trigger the crisis the system is meant to avert, but rather to identify indicators of vulnerability and publish them in normal times so that people learn to recognize the signs of an emerging crisis. To identify these signs, the IMF would draw on its experiences assisting member countries during the crises in Asia, Russia, Brazil, Argentina, and Turkey. Another critical function of the International Capital Markets Department is to strengthen the IMF’s ability to help countries gain access to international capital markets, without which the poorest countries will not be able to make a breakthrough in poverty reduction.
Improving communications between the IMF and the private financial sectors is another item on the IMF’s agenda; toward this end, Köhler established the Capital Markets Consultative Group. The IMF is also exploring ways to involve private creditors at an earlier stage of preventing and resolving crises and will examine the lessons of private sector involvement in Argentina and Turkey. Köhler recognizes that, although a stronger focus on crisis prevention will help reduce the frequency and severity of crises, economic disruptions and crises cannot be avoided altogether in an open and dynamic global economy.
Köhler is also spearheading efforts to streamline the conditions the IMF attaches to its loans, not only to sharpen the focus on macroeconomic policies but also to improve country ownership of policy programs. Indeed, loans extended this year have carried fewer conditions and, among structural reforms, have emphasized those that are critical to macroeconomic success and that fall within the IMF’s areas of responsibility and expertise.
Photo credits: Tank Tinazay for AFP, page 1; AFP page 14; Denio Zara, Padraic Hughes, Pedro Márquez, and Michael Spilotro for the IMF, pages 19, 22, 27, 29, and 32; Issouf Sanogo for AFP, page 26; Eric Feferberg for AFP, page 30; Gonzalo Espinoza for AFP, page 31.
Illustration credit: Massoud Etemadi for the IMF, pages 7 and 8.