IMF Wants To Clean Up Global Financial System

by Glen Shapiro, LawAndTax-News.com, New York

30 September 2008

Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, has called for a global solution to the US financial crisis, saying coordination of the reform effort "is a job for the IMF."

According to the Fund, reform of the international financial system could begin when finance ministers and central bankers convene in Washington next month for the IMF-World Bank Annual Meetings.

In an interview with France's Journal du Dimanche newspaper — one of several he has given to international media over the past few days — he said a proposed USD700bn bailout plan should be a first step toward reform of the global financial system, and called for greater regulation of financial institutions and markets.

"It's because there were no regulations or controls, or not enough regulations or controls, that this situation was born," he asserted. "We must draw conclusions from what has happened — that is to say regulate, with great precision, financial institutions and markets."

"This (US) plan is welcome because it's comprehensive. But it has to be the first step of international political action," said Strauss-Kahn, a former French finance minister who took over as head of the Fund in November last year.

He said the IMF would be happy to coordinate the global reform process, which could begin at next month's meeting with the World Bank. But without the will to reform, there was a danger that the state would be seen as running to the "rescue of incompetent managers and greedy speculators", he said, noting the criticism in parts of Europe about banking profits being privatized but their losses being nationalized.

Defending the IMF's role in the crisis, Strauss-Kahn said the Fund had estimated in April that there would be USD1tn in financial sector losses and had predicted a sharp slowdown in the global economy.

"But people did not want to listen to us. We were criticized for being pessimistic," he claimed. The IMF has since raised this estimate to USD1.3tn.

Strauss-Kahn believes that the response to the crisis should be multilateral and coordinated, and should involve the United States, Europe, China, and other financial powers.

"We're facing a systemic crisis, and it needs a systemic response," Strauss-Kahn told the New York Times last week.

"The IMF is the right place to organize a global response to weaknesses in the global financial system," he argued.

Recommended