Washington — The major lesson of the recent global financial crisis is that international cooperation “is non-negotiable for stability,” says Dominique Strauss-Kahn, managing director of the International Monetary Fund.
“The great challenges of today all require a collective solution,” Strauss-Kahn said April 4 in prepared remarks at George Washington University in Washington. “Globalization must be seen as a common endeavor.”
The global economy is too interconnected for nations to allow national interests to prevail during economic crises, Strauss-Kahn said, stressing that the new emphasis on putting global interests first ultimately is in the best interest of individual nations.
He said basic rules for monetary and fiscal policy that once were widely accepted “all came crashing down with the crisis.”
Today, with the previous consensus on managing economies “now behind us,” Strauss-Kahn said, the task remains “to rebuild the foundations of stability, to make them stand the test of time and make the next phase of globalization work for all.”
Strauss-Kahn called for a tax on financial activities, improved financial regulations and better supervision to properly implement the new rules.
While the global financial recovery has begun, Strauss-Kahn said, its effects are “unbalanced between countries and within countries,” leaving the overall economic situation fragile and uneven.
Prolonged high unemployment and high social inequality can strain social cohesion and political stability, which in turn can affect macroeconomic stability, Strauss-Kahn said. He urged countries to focus on social inclusion and to counter inequality as they work to rebuild national economies.
“We need a new form of globalization, a fairer form of globalization, a globalization with a more human face. The benefits of growth must be broadly shared, not just captured by a privileged few,” Strauss-Kahn said.
He emphasized that multilateral organizations will make up an increasingly significant part of this next phase of globalization, and said the IMF has already taken steps to adapt.
In addition to playing a key role in addressing the crisis, Strauss-Kahn said the IMF is looking ahead and “striving to better understand the complex interconnections running through the global economy.”
The goal of the IMF is to strengthen its ability to prevent crises, not just to manage them, Strauss-Kahn added.
The IMF has implemented a series of changes, including a new early-warning exercise to anticipate any future financial trouble, new reports that look at how domestic policies in “five key systemic economies” affect the rest of the world, and improvements in global monitoring of capital flows, he said.
He said the IMF is also working with the Group of 20 (G20) economies to “seek a cooperative path to higher growth,” and to strengthen the “global financial safety net to protect countries from sudden financial reversals of fortune.”
He added that the fund is moving to reconnect with its original mission: “to promote cooperation and fight the economic roots of war.”
Leaders will discuss global economic challenges and solutions at the IMF and World Bank annual spring meetings in Washington April 15–17, Strauss-Kahn said.