[ccebook.cn]The World in 2010

Policies to support supply-side reforms are also needed to boost growth in 2010. A
speedy restructuring of the financial sector can accelerate the recovery of credit and
capital markets and thus support investment and consumption. Labour-market
reforms will help workers from crisis-hit industries to move to more vibrant parts of
the economy. And product-market reforms—particularly in services—could create new
jobs and boost productivity.
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If some countries
tighten too soon,
this could derail
the global
recovery
Turning to a longer-term issue, I see the world taking important steps in 2010 to strengthen the international
monetary system. In the wake of earlier financial crises, many emerging-market economies stockpiled foreign
reserves as insurance against losing access to international capital markets. But this accumulation of foreign
reserves has been a destabilising force, contributing to the build-up of global imbalances (as the counterpoint
in other countries has been large current-account deficits). It has also been costly, as countries could have
invested these resources at home instead, for example in education or infrastructure.
Bolstering the buffers
I expect the IMF to play an increasingly important role as a global lender of last resort. In 2009 our
membership decided to triple our lending resources to $750 billion and boost global liquidity via a $283 billion
allocation of Special Drawing Rights (the international reserve asset issued by the IMF). But this may not be
enough. As the crisis demonstrated all too clearly, the world needs very large liquidity buffers to deal with fast
and hard-hitting financial shocks. The question of how much funding the IMF needs—and what form it should
take—is certain to feature prominently in discussions on the future of the international monetary system in
2010.
A critical prerequisite for the IMF to serve as an effective global lender of last resort is further governance
reform. The changes endorsed by the entire IMF membership at its annual meeting in Istanbul entail an
important shift of voting power to dynamic emerging and developing countries. At the same time, they
undertook to protect the voting share of the fund’s poorest members. The implementation of these and other
governance reforms will go a long way to bolstering the IMF’s ability to serve its membership.