No sideline agreement for Turkey and IMF in İstanbul
Posted by meb at October 3rd, 2009
Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), put to rest yesterday speculation that an IMF agreement would be signed with Turkey on the sidelines of the İstanbul summit, during a press conference when he answered reporters’ questions about the status of the ongoing relations with the fund.
“We discussed with [Economy Minister Ali] Babacan that it would be inappropriate to discuss [a new standby agreement] during the meetings,” he said, noting that negotiations would resume after the summit. He said they would use the annual meetings to hold multilateral meetings and work out the larger issues of the day and not use them for bilateral meetings.
Strauss-Kahn also challenged the common belief that the IMF was actively pursuing Turkey for an agreement. “We help countries that want our help,” he said, adding that “the IMF is not a bank; we are not looking for customers.”
Separately, Turkish Prime Minister Recep Tayyip Erdoğan reiterated that a new loan agreement with the fund was not essential. Erdoğan said loan talks with the IMF will continue and that the next round of talks would be decisive. He emphasized that the Turkish economy is strong enough to do without funds from the IMF.
Not out of the woods yet
While an overall mood of caution could be detected at the annual meetings of the World Bank and the IMF in İstanbul yesterday, Strauss-Kahn warned that although there were promising signs of recovery and cooperation, much work remained to be done in order to ensure the cooperation stayed on track and that the IMF could fulfill its function as a lender of last resort.
Although Strauss-Kahn expressed relief that the G-20 summit in Pittsburg had allayed his greatest fears — now that the worst of the global economic crisis had passed — that the global consensus, coordination and cooperation that had proved essential in thwarting a 1930s-like Great Depression would dissipate, there was still a risk that the consensus could evaporate as domestic political issues begin to pull on politicians.
“I was a bit worried that after the crisis … we would have the consensus vanishing,” he told members of the press. “I understand from others there are domestic issues” that could have pulled politicians in other directions, but it didn’t happen. “Pittsburg showed the strong will of leaders to use the G-20 for cooperation.”
At the G-20 meeting in Pittsburgh leaders committed to working more closely together to not only address the effects of the financial crisis but also to look at ways in which to avoid a repeat of the worst crisis since the Great Depression and of empowering the IMF to assume the role for which it was intended — acting as a lender of last resort, monitoring the world’s financial health and making policy recommendations.
Describing the İstanbul summit as “historic,” he said that the he was hopeful that the summit would be used as a means to implement and thrash out what was decided at Pittsburgh and define the “post-crisis world.”
Reiterating that loss of momentum was one of the greatest threats to this reform, he said: “We have to start now; time is the enemy of reform. Here in İstanbul, this may be the foundation of a new IMF.”
He warned, however, that three lingering issues threatened to derail the economic recovery and that the world had to work together to make sure the recovery, and indeed the post crisis economic order remained on track.
He said firstly global cooperation was needed and the cooperation witnessed in Pittsburgh was “significant.” “We will really have what we have long been asked for: one institution where all countries will be represented.” Secondly, he called on world leaders to ensure that regulation and supervision of the financial sector remained on track. The G-20 would be helpful in this regard, he said. Thirdly, he said the IMF would be essential in ensuring a more stable monetary environment. “We will be a lender of last resort in order to help remedy the global imbalances that exist at present.”
Strauss-Kahn cited the commonly asked question of “Why do we have countries with huge surpluses and others with huge deficits?” and provided an answer, saying the reason was that lessons learned by many countries from previous crises was that if a country wanted to protect its currency, and indeed, economy against speculative attacks, a large pool of reserves was essential. “Speculation on your currency causes us to pool reserves. We now have a pool,” he said, stressing that this pool would serve to influence countries to not rely on their own and thus remedy many of the imbalances. Providing these pooled resources “is part of the organization’s new mandate.”
“I don’t believe this was in the minds of the founders of the institution,” he said, referring to the ability to help the countries needing funds to resist speculative pressures on their currencies.
Later when asked by reporters, however, he dismissed notions of implementing a Tobin tax-like mechanism to guard against just these sorts of speculative attacks as outdated, and pointed out that when Tobin himself advocated the tax in the 1970s he realized that the system had grown so complicated by the end of the decade it no longer seemed feasible. The reserve pool, he hoped, would go a long way to providing what the so-called Tobin tax was conceived to combat.
An emerging social dimension could also be detected in the words of Strauss-Kahn, who not only emphasized the zero interest loans that were presently being offered to the hardest hit and poorest countries of the developing world, but also noted that the fund was taking an increased interest in issues related to “peace.” Economic crisis, he cautioned, “may lead to social unrest, democratic problems, to risk of civil disorder to even further war.”
WB head warns of tough year ahead
World Bank President Robert Zoellick said on Friday at a press conference that despite a mild recovery from the crisis in 2009, it would continue to be a tough year for all countries. At the press conference held within the scope of the IMF-World Bank annual meetings, Zoellick said uncertainties would linger in 2010, especially in the export and tourism sectors. This, he said, would have an especially strong impact on poorer countries.
He said as per the decisions undertaken in Pittsburg, the International Development Agency would provide aid to poor and underdeveloped countries as these were the people most affected by the crisis.
Zoellick said China and India were leading the world out of the crisis, noting that the world was heading towards a multipolar economic system, which had caused a revision in the Bretton Woods system both the IMF and the World Bank were founded upon. Zoellick also said the World Bank had stepped up efforts to raise a “disaster fund” to help earthquake-hit Indonesia and the Philippines and other countries in the region.
source: Today’s Zaman
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