The International Monetary Fund declared on Thursday it was shifting from rescue efforts to helping put the world economy back on stable ground after more than a year of global economic turmoil.
Outlining its work plan for the next six months, the IMF said it would help countries devise strategies to withdraw the excess liquidity they poured into their economies to stabilize the financial system and avoid a global depression.
While the IMF has said it is still too early in the fragile recovery to withdraw support, a closed-door conference at its IMF Washington headquarters on Thursday suggested it was ready to hammer out details on exit strategies.
IMF Managing Director Dominique Strauss-Kahn called the IMF work plan "ambitious but achievable" and also noted this was the opportunity for the fund to deliver on its expanded global role and show it can be relevant.
"We must take care not to lose the momentum," said Strauss-Kahn, who during the past year introduced changes in IMF lending policies and instruments that made it easier for crisis-hit countries to turn to the Fund for aid.
Among the IMF's top priorities over the next months, the IMF said it would develop a set of principles that would ensure an orderly and cooperative exit from fiscal, monetary and financial sector support.
It said it would deliver a paper in January outlining the principles for fiscal adjustment in advanced economies, the role of tax policy in fiscal consolidation and measures to address fiscal challenges arising from aging populations.
While the fund tries to ensure a smooth global transition, it will also focus on its own mandate as a lender and overseer of economic policies.
"The basic question is whether the fund is adequately equipped to be an effective guardian of global macroeconomic and financial stability," said Reza Moghadam, director of the IMF's strategy, policy and review department.
He said the review of the IMF's mandate will be done in two phases, with initial proposals presented to member countries in April, followed by a more concrete plan in October.
A major challenge for the Fund in the coming months is how to come up with a plan that would discourage countries from accumulating massive foreign exchange reserves that have led to distortions in the global economy.
The IMF is just beginning its work on the issue and said it hoped to have preliminary findings in time for IMF meetings in April.
Moghadam said the key question in trying to resolve the problem posed by huge currency stockpiles was whether or not the could provide a credible liquidity backstop for countries facing crises.
In October Strauss-Kahn suggested that the IMF's hand be strengthened by increasing the amount of capital it can deploy in times of crisis by perhaps $1 trillion or more.
He argued that would dissuade countries like China from building big currency war chests because they would know the IMF could come to their aid in hard times.
In addition the IMF has also assumed a new role in helping Group of 20 major developed and developing countries figure out policies and forecast the impact of those policies to ensure more balanced world growth.
"We see our role as a trusted adviser, with the G20 firmly in the driver's seat," Moghadam added.
The next few months will also see the start of politically sensitive negotiations with member countries that would give emerging economic powers, such as China, a greater say in the IMF.
The talks were given a head-start in September when the G20, and later the IMF's steering committee, supported an increase in the voting shares of under-represented IMF member countries by at least 5 percent.
Moghadam said changing the balance of power in the IMF through quota reforms was central to making the fund more effective and relevant.
Member countries have agreed to conclude those talks by January 2011.
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