>> by focusing on measures rather than targets being fixated on targets when the macroeconomic circumstances are such that the targets will not be reached, not because the country is not implementing, not because the country is sort of relaxed about it because circumstances are such you cannot be reached, but focusing on the measures, making sure the measures are actually implemented. and above all in addition to slowing the pace if needed, in addition to focusing on measures, certainly what we are mindful of is that they should be clearly focus on austerity but they should be a focus on growth as well. we believe that the two are not mutually exclusive. the programs can be tailored in such a way that some growth friendly measures are identified. the eurozone remains the greatest risk for the global economy today. as i said earlier on, the ecb

move from two weeks ago with the omc was clearly a turning point. but the countries have to really work together much more cohesively in a much more coordinated manner and order together turned the corner. as you know, european union and the eurozone in particular are not the only threats on the horizon. the united states is also currently a threat. the immediate concern is, many of you know that, is that under the current law there would be a dramatic tightening equal to about 4% of gdp. that's what is, refer to as the fiscal cliff. and that is good. it entails a contraction of 2% of gdp, and that is not good at

all, especially if you consider the forecast of growth of the united states is pretty much in the range of 2%. so that is a racing any growth in the united states, would be the consequence of not dealing with the fiscal cliff and not dealing with the debt ceiling, which are both looming threats on the very short-term horizon. and it's not a threat just for the united states of america. it's the threat for the global economy, given the size of the u.s. economy and its linkages with many other countries around the globe. so we all hope that despite political calendars, which anywhere in the world, have a degree of unpredictability there will soon be enough political clarity and now political gains in order to actually focus on removing this uncertainty and making sure that both the issue of the fiscal cliff and the issue of the debt ceiling are

addressed. that's for the short-term. clearly for the medium term as indicated in japan actually there should also be a clear indication of what is the plan for actually reducing debt going forward in order to at least create an environment where anticipation can be built on a safer basis. let me turn now to the challenges facing the rest of the world. because each and every part of the world has to also deliver on its promises. you might argue that growth in emerging markets economist and a low income countries promises have been delivered upon. because when the crisis hit there were is light in the darkness. emerging markets were able to lead the global economy in times of need and low-income countries, because have suffered well enough, were well prepared

to resist the crisis. but after several years of very strong growth, some of them, some of them double digits, clearly that dynamic is shifting and the illusion of the coupling, if it was still every year, has definitely vanished. the major in emerging markets are slowing. that will be reflected in our forecast as well. so they must follow through on actions need to position themselves as the potential global growth leader for the few leaders for the future. the focus should be on countering vulnerabilities whether their domestic or whether they are external vulnerabilities. what does it mean? well, for some that means putting monitoring and fiscal tightening on all common sometimes even putting in place the right degree of stimulus as was just recently done in china.

for other countries it will mean ensuring that high credit growth does not compromise my national stability or jeopardize future growth. but for all of them what is key will be to prepare for the potential spillovers from the crisis affecting the advanced economies. what can the imf do? well, we can help. we have refrained some of our instruments, effective credit line, for instance. the precautionary and liquidity credit lines which are both instruments aimed at comforting the country that is actually having the right set of policies in place, acts on tape as we say, in many countries have actually used those facilities, the case from mexico, the case for colombia, the case for polling, the case for morocco

more recently with a precaution and liquidity lines. and together those not actually exceed the amount of commitment that we have for europe. okay, turning now to low income countries. they have performed relatively well through the crisis, and, frankly, when you look at numbers, starting from a low base admittedly of course, their numbers are generated in excess of any growth numbers we've seen in either advanced or emerging markets economies. but today they're more exposed to shifts in economic fortunes. i do not simply mean the potential fallout from the advanced economies, which would be a clear case, that it's sometimes more of the ripple effect on the slow down affecting the emerging markets as a result of the crisis in the advanced economies that is actually exposing them to those shocks. take the case, for instance, of most sub-saharan african

countries producing raw materials. that generally supplied emerging market economies such as china, for instance. they will be suffering a fall back on that ripple effect of events economies crisis. i'm also thinking as far as concerned, the 20% increase in global food prices since june. and if you start segmenting in cereals as it may be because that's one of the most frequented both traded and used food, if you take just maize and wheat, the prices of which increased by 25% just in the month of july. if you apply that to a country like -- were the drought is also affecting the country, that excluded putting populations at risk despite good policies that have been placed by those countries. so they have to continue those quality policies that they have put in place prior to the crisis. they have to continue using the

policy of building buffers to defend against those risks. at the same time, they cannot necessary trouble that journey all by themselves. and the international community needs to lend even more upper hand to help them help their sales. and that includes ensuring sufficient financing, for instance, at the imf. we have a facility that is called the poverty reduction and growth fund that is specifically dedicated to concession amending to the low income countries. now, that particular fund needs to be replenished, and i certainly want the replenishment to be completed at the tokyo annual meeting. i need a 90% majority of the imf support it, and we are making huge progress. it was characteristic to see that actually the low income countries volunteered themselves by actually committing the

windfall profit from the gold sale that was done by the imf a couple years ago in order to replenish that fun. and i sorely hope that other countries, including advanced economies, to that as well. we're getting very, very close as i said. third point that i would like to mention before i turn very briefly to what the imf has done, does, and will do is the middle east. so clearly, it's clearly an important part of the world where massive transition is happening, and we will be discussing that in tokyo at time of our annual meeting. we've all been shocked and saddened by the events of recent weeks. the sacrifice, the sacrifices that have been made, the suffering that has been endured, make it all the more important that we keep our eyes on the big picture, that initial promise of the arab countries transition.

transitioning from one regime to the other is never an easy thing to do. we've seen it some 20 years ago at the time of the fall of the berlin wall. for countries to move from one regime to another takes time, takes training, takes adjustment. and people are not necessarily prepared for the. those people that should drive the show, should drive the bus, they need to be able to formulate strategies. they need to build consensus. they need to move forward with common purposes, and generally and haven't had any training or practices for doing that. and it takes time to build the foundation for both growth, inclusive growth which is clearly something that must be high on the radar screens, as well as employment. this transitions also need external support. you all have heard about the

partnership. some of the partners, some of the members of the partnership -- [inaudible]. and it's nothing necessary going to be by way of budgetary contributions which are difficult or it can take many other forms. i was recently reminded when i was in egypt by one of a high ranking technical experts working and helping the egyptian authorities that what they were most concerned about with market access. clearly down the road it has a cost and has a competitive effect on economies. not necessarily budget considerations that are needed for those countries, but more better market access, technical training. those are the issues that are clearly high on the mind of those authorities and their population. and the imf can help, and has helped and will continue to a. we provide a lot of technical

assistance. jordan, for instance, is a major recipient of technical assistance. so is tunisia. and we don't only limit our role to technical assistance. we give advice as well, and we listened to this country. we've already committed more than $8 billion in three countries where we already have programs underway. because the world has a huge take of making sure that transition, that transformation leads to economic sustainability that will actually eat population and create jobs for the young people. and that brings me to my final point, what about us, what about the imf? well, i've tried to describe for yoyou a changing and the fast changing global economy, and as a result the imf must be fast-changing and adjusting to this new world, if you will.

and much of this is underway, and i will mention three areas were clearly change is underway at the imf. first of all, we are strengthening our surveillance with the purpose of participating in strengthening global stability. trying to better connect the dots between countries and focus on the stability of the system as a whole. three upgrades in that regard. one is a new decision that provides for deeper analysis of spillovers and cross-border effects. we had the traditional sort of bilateral approac approach to surveillance and the neutral level surveillance of it on the site, built from the bottom in a way. that new decision which is called integrated surveillance decision is bringing the two together to enable us to have a better view of not only the intrinsic domestic policies, but also the effects of domestic policies can have on other

domestic markets. second upgrade, the new external sector report that sharpens our assessment of countries policy from a multilateral perspective, and that obviously touches on exchange rate, and we hope to have really a state-of-the-art mechanism that addresses on a lateral raises the issue dashing unilateral basis, appreciation, under appreciation as is clearly in the mind of many of us. third upgrade, a greater focus on analysis of the critically important financial sector. i've mentioned the lack of progress in financial sector reform, particularly when it comes to derivatives, products, central clearing platforms and the like of them, which will be behind schedule, compared with the initial agenda that was said

at the toronto g20 meeting but we must be equipped with the system working together with the fsb that will actually raise the flag and be on alert when things go in the wrong direction. so strengthening our analysis components, our tools in order to contribute to strengthening stability, that's one goal. the second that we need to do is to actually strengthen our global financial safety net. and in so doing some of you have noticed we have secured significant additional funding from the membership with a total of bilateral loans in the range of, not in the range, of 456 billion u.s. dollars by way of bilateral contributions to and on our quarters, which is our natural basis, and the new arrangement to borrow.

that's for the general fund resources. there is that of the fund i mentioned, the poverty reduction and growth fund which clearly i want to see replenished as well as we go into the tokyo meeting. that's to strengthen our ability to operate as a financial safety net. and third, strengthening that is needed, in addition to contributions stability, financial safety nets, is our governance. and our governance clearly has evolved over time, and i've tried to keep up with the changing world. we have had reforms ever since 2006, and there is already been shifted towards emerging market economies, for instance, but there were a set of reforms that were decided in 2010, and to be accomplished by 2012. and we have made very significant progress towards delivering on that promise that was made by the membership.

the first reform is the quarter reform. increasing significantly the quotas. for that we need to have a 70% vote. we are in excess of 70%. we have reached 73% and we are moving on. so on that front, quarter increase come we are there. but that reform can only be triggered if the conference reform is also voted. and there we have two triggers. one is i need to have 113 members signing on and saying yes, we want that reform. we are very close. i'm short a few countries. not many, and i hope that by tokyo we are there. and the second threshold is an 85% majority. that's a very high threshold. we are doing everything we can to be as clear as possible to the finishing line, and if not in tokyo and shortly after that, and have good hopes that that

would be the case. what will that produce? when the whole set of 2010 reform is completed, and promises of membership delivered upon? that will mean that it will increase the quota share of dynamic emerging and developing countries by a further 6%, making it a total of 9% shift since 2006. it will mean that all the pretty countries will be part of my top 10 members in -- bric countries. it will create and all elected board. so as i said, think we're getting close, and i certainly will spare no effort to make sure that the membership delivers on its promises. now, that's the collective part that we have embarked on. multiple promises made by

multiple players, multiple layers of intervention, a complicated game. probably more sophisticated and we were used to, and certainly one that we tried to adopt to constantly making sure that we always remain relevant, which means independent and credible because of the quality of the advice we give. and clearly, you know, to go back to the quote by robert frost and he was talking of those promises. he was also talking about the road to take. well, clearly i hope that we can take that road together and see each other and even better circumstances. thank you very much for lunch. [applause] >> thank you very much for sharing your views on such a wide range of critical issues. let me abuse my position as host to lead off with a couple of

questions and then will open to the audience. i first would like to ask you a question relating not only to your current role as managing director, but your former role as finance minister of france. you focus on the euro zone, the epicenter of the crisis and the need for action. and you quite rightly i think emphasized moving ahead quickly on banking union and fiscal union. as you would be among the first to know, these are deep buildings international sovereignty in europe. some of skepticism and markets go to the question of how far the europeans will really be willing to go on that. particularly banking union where national governments in europe have been quite jealous of their control over their banking system, their relationship the the role of the state and all that. so talk to us all little more

about what now makes you confident that the european countries will, in fact, submerged sovereignty sufficiently to do true banking union, to move towards fiscal union. and if that occurs, does europe come out of the end of the process a much stronger entity than we now worried about? >> the latter part of your question my answer is yes. if they manage to organize that fiscal union, the banking union have the mechanisms in place such as the esm as a backstop, they will come out much more stronger than they are today. there's no doubt about it. you know, i would say two things. number one, they have already troubled -- child a long way. i remember the early days when europe was facing the crisis, as

a sort of consequences of the crisis that originated here in this country, the thing that was constantly mention was no bailout, no bailout. there should be no bailout. because the treaty provided so. well, we might still argue that there is no bailout, yet it is clearly worked and a way to organize for the mechanisms to respond to the situation of the member states that are in difficulty. so the european financial stability fund to be followed by the of instability mechanism would have been unheard of. the fiscal, let's call it the budgetary process that results from these six part directive, which is a secure name for a set of rules, that budgetary process

would have been unheard of three years ago. and certainly when i was minister of finance, we were beginning to see how the budgets -- think about it. the budgets would have to be cleared through the european institutions, such as the european commission, and be screened by euro area partners before it was actually debated and discussed in details by the national parliaments. that's a big move from, you called it the sovereignty point of view but i think sovereignty in that regard can be accommodated, but hadn't gotten through the european institutions and euro partners purview. so a lot has ordered been done. the firewall is in place. the esm will be operating as of the eighth of october. the budgetary process is such, and to discipline associated with it by way sanctions,

penalties, are in place as well. but there's more to be done. clearly. and the european common banking supervision is going to be a testing case. how will it be done? how encompassing will it be? i think there is no debate now that the european central bank will be right in the middle of that and will have the authority to supervise the major one, and elevate to its level any of the other banks that it would like to scrutinize and supervise better. how fully operated will be and how soon, all of those will be a test of the desired -- and the want to affect. i hope there'll be a middle point do make sense for the europeans themselves and for the european banks. i just happen to think that actually organizing that,

organizing it soundly with appropriate bulletin and review and test of the banking system itself will actually be a significant improvement for europe. >> let me ask you one of the question having to do with the role of the fund, as you discussed towards the end of your remark. all of us who follow these issues greatly applaud your new surveillance decision, report, attempting to come as you said, intensified the role of fund on that set of issues. but i would like to ask you a question as managing director, now that you got this new tools, what you plan to do to move them forward, recognizing you have to bring your member states along, but what do you plan to do by way of action yourself? the report was i think enormously helpful and can do. we have some of your lieutenants here a week ago, talked about it

in great detail but it says quickly there are very large persistent imbalances. are very excessive reserve buildups. there are very severely misaligned exchange rates, not just china though the biggest, but lost in that area. one could argue that this is a cardinal failing of the multilateral system today because the old bretton woods system was built -- of the 1930s, and with somewhat similar activities today, but the multilateral system has not yet effectively dealt with them. now you have new tools, and jeff called for action. what can we look for? >> we are going to use the tools. first of all the tools have been approved by the membership. you know, i think that's probably going to be an unnoticed achievement, but the executive directors of the imf who are in the room, my board members, certainly -- they are

modest so they want to say so but you'll be the first one to recognize that a bring on that integrated surveillance decision, that brings as i said the sort of, i'll make a simple because it is a very complicated issue, very thorny one and one that fundies actually delight in. but it is a sensor brings a sort of external of funds of policies into the assessment that is done of a particular set of domestic market policies. that was a huge achievement because nobody likes that. the fact that the membership has endorsed it, my board is actually approved it. so it's a tool that we can use, and we are going to use it. the same is true for the external sector report with the approach that we take, which is multilateral which takes into account the policies of the country, and which obviously will indicate that where there

are over appreciation, you are under appreciation because the whole system is intended to balance out. so we will be using those tools and we will be saying so brickley spent can you imagine the fun blowing the whistle our naming and shaming countries that do persistently and large quantities that keep their exchange rate undervalued? >> don't forget that in our article iv, which is the bilateral preview of countries policies, we include our assessment of the exchange rate currency. and i think i'm pleased to say that many, many countries, including the key players do not object to those being published now. so it's a question of leveraging that and using it. going forward. >> okay. open to the floor.

>> not them, thank you for your presentation last night in new york on human rights. you posted all our morale. my question to you, there is a variable which is unknown. the impact -- >> can ask you to get close to the microphone, because it is very nice people are making photos and making click, click, click and i can't take it. >> my question is a conflict that could take any time, and that's a conflict with iran. what would that do to our crisis? and what will that, in fact, be a places like spain, italy, greece, and morse important, the low income countries? >> this is clearly a risk that