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UPDATE:IMF Chief:Rebuilding Global Governance Structures Vital To Future Growth,Stability

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  By Ian Talley 
  Of DOW JONES NEWSWIRES 
 

WASHINGTON -(Dow Jones)- The head of the International Monetary Fund on Wednesday argued for rebuilding the global governance structure with the IMF at the center, warning that without a revitalized effort by world leaders under the counsel of the fund, the future of global growth and stability was at risk.

Dominique Strauss-Kahn said given that "the situation in Europe remains troubling, and the future is more uncertain than ever...we need to start rebuilding these governance structures."

The head of the IMF warned that the Group of 20 largest industrialized and developing nations--effectively the executive board for the global economy--needed to heed the IMF's counsel on rebalancing and financial reform. He was scheduled to speak at an event with the head of the World Trade Organization, Pascal Lemy, in Geneva.

"The international community must choose," Strauss-Kahn said. "It can seek out a new growth model for a new world, or it can choose inertia, fall back on national positions and risk years of instability, the breeding round for yet another crisis."

Strauss-Kahn's strategy for restructuring global economic governance focused on cementing the fund at the center of financial and economic supervision, and drafting the architecture for growth out of the current crisis.

He said that because of previous fund recommendations on boosting stimulus, selling gold to fund interest-free loans and guiding financial sector reform, the G-20 had so far avoided a second Great Depression.

Strauss-Kahn pointed to the IMF's warnings early in the financial crisis--which he said leaders largely ignored--as reason for the G-20 to heed the institution again now. Then, the fund warned that the collapse of the banking system would ignite another Great Depression, but G-7 leaders criticized the fund as too pessimistic, he said.

"What was most striking at the G-7...was the refusal to face reality," Strauss-Kahn said, using the anecdote as lesson for the current sovereign debt and global imbalance crisis.

The IMF chief warned that although banking industry restructuring had so far helped to curb the effects of the crisis, reform of the financial industry wasn't moving fast enough.

"But regulation is only one pillar. The two other pillars are supervision and crisis resolution," he said, saying that supervision may be even more important than regulation.

Strauss-Kahn said the delay in strengthening supervision and creating effective international crisis resolution mechanisms "could well lead to the next crisis."

He also warned there's still a risk that the G-20 could still become a largely irrelevant institution.

"I would not say that this risk has been completely averted--far from it," but the last G-20 meeting in Seoul showed that a second phase is possible, Strauss-Kahn said.

Bolstered by the fund-managed country spillover reports and Mutual Assessment Process, or MAP--essentially an economic roadmap for boosted global growth and avoiding potential meltdowns--"I believe that the G20 can deliver," he said.

Implicit in Strauss-Kahn's speech is that, if the G-20 members don't commit to contributing to valid spillover reports--which outline how a country's economic policies negatively impact its major trading partners--and the so-called MAP, the G-20's efforts could be in vain and global economic imbalances--already widening--could precipitate future crises.

Besides economic governance, Strauss-Kahn envisioned a greater part for the fund in financial restructuring: "the IMF has a role here...We need supervision that is not afraid of saying no to powerful interests."

He also reiterated the fund's recommendation for a financial industry tax, counsel largely refuted by many members of the G-20. "Ultimately, we must extricate ourselves from the ruinous cycle of privatized gains and socialized losses. That is why the IMF has proposed a tax on financial activities, although so far without success," he said.

 

-By Ian Talley, Dow Jones Newswires, 202-862-9285; ian.talley@dowjones.com

 

(END) Dow Jones Newswires

December 08, 2010 13:29 ET (18:29 GMT)

Copyright (c) 2010 Dow Jones & Company, Inc.

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