The G20 needs to engage in frank discussions to achieve policy coordination in Cannes, to attain stability while securing growth. We are at a juncture where stability should be the main objective, since the best way to speed up growth and foster job creation is by stabilizing the global economy.
The main challenges currently lie in advanced economies. However, the international community, and in particular emerging market economies, can facilitate the required process of adjustment by stabilizing our own economies and continuing with the implementation of solid macroeconomic policies. The baseline scenario, if we are able to avert tail-risk events, is one of a protracted period of low growth.
It is in this context that we should emphasize the need to strengthen the international financial architecture. We need to lay the groundwork for a system that not only acts to resolve crises, but also has the main objective of preventing them.
Last year, leaders of the G20 mandated finance ministers and central bank governors to prepare policy options to strengthen global financial safety nets. At the same time, the IMF overhauled its lending instruments in order to strengthen global financial safety nets.
We should continue exploring ways to enhance the Fund’s capacity to deal with contagion in systemic crises. Even though the financial resources available to the Fund to support member countries have recently been increased, more needs to be done.
An adjustment of quota size is of the essence, since they have been lagging with respect to the rate of growth of the world economy, financial markets and countries’ interconnectedness.
Preventive facilities, like flexible credit lines, should be encouraged. Facilities oriented to low-income countries should also be strengthened, for them to deal more effectively with commodity price volatility.
Given the size of potential shocks in a globalized economy, a much larger amount of resources for the Fund is required. We realize that this will involve strong commitments among G20 countries.
We should also strongly push for the timely implementation of the 2010 agreements, including the doubling of quotas and governance reform of the IMF. On the latter, emerging market economies will make sure that the commitments made will be honored, because an effective financial architecture needs to be accompanied with better governance. For policy recommendations to be heard, accepted and implemented, it is vital that the Fund be perceived as an apolitical institution in a political environment.
The IMF should be perceived as legitimate in the sense that even-handedness among members prevails, there are no regional biases, and country representation and voice is well-balanced. Emerging markets have been reliable partners during the last decade and we have vast experience in policymaking that can benefit the global community. In order to achieve this balance, European overrepresentation should be addressed.
Financial regulation should also continue to be a basic building block of the G20 agenda. The implementation of hard-reached agreements should now be a priority to ensure the necessary stability for the financial system to support growth. This must include improving the institutions that oversee financial stability.
The G20 has a global responsibility beyond the wellbeing of its members. Thus, we should ensure that we are building a fair and level playing field in the financial system. It is of the utmost importance to carefully review the unintended negative effects that financial reforms may have on other countries, particularly in emerging and developing economies.
In short, we face the task of adapting the international financial architecture to a new and more challenging world. The current system was based on old premises. It should be replaced by a proper understanding of a new reality where stability is the guiding principle.
Agustín Carstens is governor of the Bank of Mexico and former deputy managing director of the IMF