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The issue of IMF reform, especially with regard to governance and quotas, is very much back in the forefront of discussion, and that is in particular in the context of how we can ensure the financial stability of the new global economy. As Managing Director of the Fund, Mr. de Rato is working to retool the Fund to make it more effective for the 21st Century and modernize its core functions. He personally epitomizes the Fund's commitment to working boldly to build a broad consensus for change in Singapore, which is an important task and no easy one, and we appreciate very much his willingness to come here and preview some of the issues and, with Susan's help, to discuss it with all of you. Mr. de Rato, the podium is yours. Good morning. First of all, I want to thank the Brookings Institution for giving me this opportunity and to Strobe Talbott for his very kind introduction and in advance to Susan Collins for moderating the discussion that will follow. This is the first day after Labor Day, and we don't have to tell our children what that means, but for us also, I think it is a good moment to take stock for a fresh start and to look at our work and the agenda that each of us has set for the next future. Regarding the Institution I have the honor of leading, the International Monetary Fund is also going through a very exciting time, and we will be hosting the Annual Meetings in Singapore in around a week from now. This will be the first time since 1997 in Hong Kong that the Annual Meetings of the International Monetary Fund and the World Bank will be held in Asia, and I believe this is a very good opportunity. Asian countries' commitment to openness, trade, and private sector development has made the region the most dynamic in the world. The two principle items on our agenda in Singapore are discussions of the developments in the global economy and also a stock- taking and some decisions on implementation of our Medium-Term Strategy, which is the plan that we lay out for the Institution to adapt to what our members need in the 21st Century and what globalization is demanding. Today, here in the Brookings Institution, I want to focus mostly on two aspects of the Medium-Term Strategy: proposals for reform of the Fund's governance structure and the changes we are making in the way we conduct surveillance. But before doing so, let me say a few words about the global economy. The global economy has been resilient in the past year, even with high oil prices and some other macroeconomic disturbances and a change in monetary policy in most of the main areas of the world. At the same time, we have to say that growth prospects are still good, not only for 2006 but also for 2007. Starting here at home in the United States, the speed of expansion is moderating but certainly to a more sustainable path that largely reflects the change in the monetary policy that has been taking place and also some slowdown in the housing market. Elsewhere in the world, growth prospects are encouraging. We see Japan appears to have put deflation behind it; China and India continue to be engines of growth; and many other countries, including Sub-Saharan Africa, are enjoying a continuation of the strong growth that we saw in 2004 and 2005. At the same time, we also see a stronger recovery than expected in Europe. In that respect, we expect next year to be another solid year of growth in the world with expansion in Europe and Japan supporting global demand even as the U.S. moves to a more moderated situation. Nonetheless, there are more clouds on the horizon than there were a year ago. Inflation risks are a concern as output gaps narrow; high oil prices could adversely affect both inflation and growth; and there has been a major setback in the Doha Round. Of course, global imbalances continue to grow and could be exacerbated by the previous risks that I just mentioned. So, in this respect, one of the messages I want to give to policymakers a week from now in Singapore is that the world is facing an increasingly challenging environment and that policymakers in different countries with different agenda should be proactive in addressing the risks. Let me now move to the central theme which is the progress in implementing two very important aspects of our Medium-Term Strategy, relating to our own governance and also to surveillance. Our Medium-Term Strategy, approved by the member countries last September and with some proposals implemented last spring, was motivated by the central insight that the world is changing very fast and that the Fund needs to adapt to reflect the changes that we are seeing today and that those changes are posing new challenges to our membership. New economic powers are rising, especially among the emerging market economies. Financial globalization creates tremendous economic opportunities but has also changed the nature of risk. How should the Fund react to these new realities? I believe that the changed distribution of the economic weight in the world demands that we reform our governance structure. The distribution of quotas which largely determine voting power in our Institution and, at the same time, influence the amount that members can borrow from us has changed only gradually over time. We know, if we look at the numbers, that it has not kept up with the changes in the relative position of countries in the global economy. So, in that respect, I see a clear need for rebalancing of quotas to reflect changed economic realities, especially the increased economic weight of major emerging economies but also of other economies in the world. I also see, at the same level of importance, the need to protect the voice and representation of low income countries. Their voting power has been eroded over time, in part because other countries' relative importance in the global economy has increased and in part because basic votes . an equal allocation of votes based on the principle of equality of states that was made when the Fund was founded . has become relatively less significant with each new increase in quotas. This gives rise to concerns about the adequacy of voice and representation for a number of countries that continue to borrow from the Fund but that have only a limited share in Fund voting. Why are these issues important? The Fund has a global membership and a global scope of responsibilities. It is the most important and sometimes the only forum for collective action on complex macroeconomic problems. Increasingly, the Fund is also a vehicle for promoting cooperation between groups of members, most recently through the initiative on multilateral consultations to which I will refer a little later. The Fund has legitimacy and a record of effectiveness, but if it is to retain its legitimacy and maintain its effectives and be a useful vehicle for promoting international cooperation, all of the Fund's members must be confident that they have a fair share in its decision-making and that their voice will be heard. This is certainly a challenging process for the structure of a multilateral institution. There are many interests at stake and also as many principles that can be invoked to defend those interests. I want to say that I am thankful for the attitude of many, many countries governments. I have to say I have witnessed that they have taken a broad view of the Institution's interest and not just looked at their own narrow, legitimate but narrow, interests. As a result, I can report that the members of our Executive Board have risen to the challenge and have agreed on a package of measures that will be recommended to the Fund's Governors in Singapore. One element of this package will be implemented very quickly. This is an increase in quotas for four countries that are clearly under-represented by any standard you want to use: China, South Korea, Mexico, and Turkey. This increase would be designed in part to rectify the most extreme distortions in the representation. It will correct about one-third of the actual under-representation, but its greater significance is an initial action in a broader process of reform. This will take place over the next two years with discussions beginning very soon on a new quota formula designed to capture more accurately members' positions in the global economy, so that . if possible by next year in 2007 at the Annual Meetings here in Washington or at the latest, in 2008 . the Board will agree on a new formula and recommend further ad hoc increases in quotas for a broader range of members, based on this new formula. There is also agreement that we should ensure that quota shares continue to evolve in line with the changes in members' positions in the global economy, while continuing to ensure that the Fund has enough liquidity to achieve its purposes. The Board will also ask Governors in Singapore to agree in principle to an amendment of the Fund Articles to at least double basic votes, so that the existing voting share of low-income countries as a group is protected, and to add a provision in the Articles of Agreement that the share of basic votes in total voting power should remain constant in the event of any future changes in total voting power. It takes time to amend the Articles of Agreement of an institution with 184 country members . in many countries, we need legislative approval . but the plan is that these changes be made at the same time as the second round of quota increases. In addition, right away, I will ask the board to increase the staff in the offices of Executive Directors who represent a very large number of countries, like is the case for Africa, to help them continue to make their voices heard effectively. This is a package that I have taken some detail to explain to you, and I apologize if some elements I have described seem arcane. The principles behind the package are not arcane. They are based on fairness, and their impact will be large. They will allow the Fund to remain an effective and credible participant in the global economic discussion. They underpin all of the other elements of the Fund reform. Now, let me turn to the second issue. One of the most important functions of the Fund is surveillance of the international monetary system and of the global economy. By surveillance, I mean both monitoring of the global economy and the Fund's discussions, called consultations, with individual members on their economies, which are done usually once a year. In proposing changes in this area, we are building on reforms that have been underway for many years, especially the increased emphasis that we have placed since the late nineties on promoting internationally agreed standards and codes and on a greater transparency in our operations and assessments. But the Medium-Term Strategy goes further with the aim of adapting the Fund's surveillance to a new world of financial globalization with all of its attendant opportunities and risks. One change that we have already begun to implement is the introduction of a new tool to which I have referred before, multilateral consultations, in which particular issues of global or regional significance will be taken up collectively with some members and, where relevant, with entities formed by groups of members. Multilateral consultations are an example of the Fund's increasingly important role as a vehicle for international cooperation. The aim is to provide a vehicle for analysis and consensus-building and a framework that helps our members overcome some of the hurdles to individual action by emphasizing the benefits of joint action for all. Our first initiative on multilateral consultations has already begun, and it was agreed last spring here in Washington and focuses on narrowing global current account imbalances while maintaining robust global growth. Fund staff have already held bilateral discussions with the participants in these multilateral consultations on global imbalances . there is China, the Euro Area, Japan, Saudi Arabia, and the United States . and over the coming months, we will hold roundtable meetings with all of the participants together. The consultation in this case is focusing on the spillovers and linkages among these and other economies and on actions that could sustain growth and promote an orderly unwinding of the imbalances. I don't want to go into much detail of these discussions as these consultations are still at an early stage. It will also take time both to complete the consultations and for actions taken to produce effects on the global imbalances. Global imbalances have been built over a number of years and will not be reduced to sustainable levels quickly unless we have a crisis. However, I hope that the consultations will produce (a) a shared analysis of the nature and consequences of global imbalances, (b) a common understanding of policies designed to make things happen in several countries together, and (c) understandings of the role the Fund can play as a forum for implementing the common approach, a forum in which all of the international community is represented. Another part of the reform of the Fund's surveillance is a review of the foundations of our surveillance, embodied in past Executive Board decisions, to ensure that they are clear and relevant. We are sharpening our focus on exchange rates. A recent study we made of our staff reports on 30 large economies revealed that most provided assessments on the adequacy of exchange rate regimes and exchange rate levels, but we can improve our analysis further. We are in the process of extending to the currencies of the major emerging economies, the analysis the Fund currently does to assess whether the exchange rates are broadly in line with fundamentals, as we do regularly with developing economies. This is something that needs to be handled with caution, given the methodological difficulties and sensitivities, but I think it is a very important step on global surveillance. We are also intensifying our efforts to integrate our financial sector framework, including on capital and financial markets, in our regular surveillance activities. The increased importance of financial markets for growth and development for all countries is a major feature of the new world globalization. It is of particular importance for emerging market countries which have a lot to gain from financial integration, but many also become more vulnerable in integrated global markets. The Fund has been placing increased emphasis on identifying the strengths and vulnerabilities in the financial sector for many years, including through the launch of the Financial Sector Assessment Program in the late nineties. Where we are now advancing, it goes a little further. In our surveillance of the global economy, we have already begun to devote more attention to the linkages between the financial sector and the real economy. The linkages work both ways. We are examining the implications of financial sector changes for countries' economies, including in a chapter of the World Economic Outlook that will be released tomorrow. Risks to financial stability are addressed in the Global Financial Stability Report that will be released on September 12th. In our surveillance of individual countries' economies, we are enhancing the analysis of financial sector vulnerabilities and ensuring that this is reflected in our macroeconomic analysis and policy advice. In Article IV consultations reports, we will increasingly cover the implications of such vulnerabilities for macroeconomic aggregates and capital flows and for domestic and external spillovers. The bottom line is that in the past, nasty surprises in the financial sector have had even nastier effects on the real economy. To avoid such surprises, we are devoting increased resources to financial sector surveillance. I have focused particularly on surveillance work today because it benefits all of our members and it is at the heart of our responsibilities, but the Medium-Term Strategy covers many other aspects of our work besides surveillance, and let me mention very briefly two areas where I expect some changes over the coming months. I think we need to improve the usefulness of our support for emerging market economies. After very heavy borrowing for a period of years, not many of our emerging market country members borrow today. This is partly a reflection of the good conditions in financial markets but also of improved economic management in those economies. But I want to make sure that if financial market conditions worsen, the serves we offer to our members are sufficiently useful that they will come to us for support if they need it. For this reason, I have proposed that we develop a new instrument to provide liquidity for emerging market countries that have strong fundamental but remain vulnerable to shocks. The aim would be to provide assurances that substantial financing will be available in time of need, a framework for policy commitment and monitoring, and a signal to the markets. Our Executive Board discussed this instrument for the first time last week. I look forward to further discussions on this issue in Singapore and after Singapore. Given members' support, we would work on these issues in the coming period, and I hope that we will be able to make concrete proposals in the next six months by the Spring Meetings here in Washington in 2007. Let me now turn to low income countries. Over the past year, the Fund has moved quickly to implement the Multilateral Debt Relief Initiative, wiping out the debt owed to us by some 19 poor countries, and other international organizations have followed us. We have put in place a new subsidized lending facility for low income countries hit by shocks and a new instrument to support policies in those countries that do not need Fund financing, but it is clear that the challenges are very big and we need to do more. Mahatma Gandhi is reported to have advised "Think of the poorest person you have ever seen and ask if your next act will be of any use to that person." This is certainly a very high standard to meet, but it gives us the standard we must try to meet. I have proposed a Medium-Term Strategy that the Fund renew its commitment and improve its effectiveness in helping low income countries meet their Millennium Development Goals, by focusing on what we do best and on tasks where we can make the greatest contribution. These includes helping countries reap the benefits of higher aid and debt relief and avoid a new buildup of unsustainable debt, promoting macroeconomic stability which is the prerequisite for sustainable growth, and providing support in policy areas where the Fund has expertise and that are critical to growth; for example, trade policy and financial sector issues. In all of these areas, we also need to work closely with others, such as the World Bank but also the donors and most importantly, with the country governments and civil society of those countries. To sum up, we have, as I said, a very exciting and important agenda before us in Singapore and beyond. The International Monetary Fund has made good progress in the past year on measures to improve surveillance, measures to help low income countries, and others aspects of our Medium-Term Strategy. We have a more clear picture than we did a year ago of the direction that those reforms should take, and we have taken steps along the way. I hope that in Singapore, our Governors will support the planned changes in Fund quotas and endorse our plans for continued reform of surveillance. I also hope that they will indicate their support for the future work, including that on crisis prevention and Fund income that we are planning in the coming months. We have a long journey ahead of us. I am sure it will be exciting and sometimes may be difficult, but we approaching it with the determination and with the conviction that the Fund can help our members meet the challenges of globalization, so that the people of the countries can enjoy the benefits. With that, I certainly thank you for your attention. I invite your comments and questions. Thank you very much. (Applause.)