barbro wickman - parak : the imf ’ s role – new thinking in the wake of the financial crisis speech by ms barbro wickman - parak, deputy governor of the sveriges riksbank, at a meeting at global challenge, stockholm, 5 october 2012. * * * i would like to thank ms maria wallin fredholm and ms emelie mannefred, from the riksbank ’ s financial stability department, for their assistance in the writing of this speech. the 188 member countries of the international monetary fund ( imf ) will gather in tokyo for the fund ’ s annual meeting next week. when i began working with imf issues at the riksbank in 2007, my impression was that the imf was suffering from an identity crisis. the fund ’ s lending to countries in crisis appeared to have played out its role and major staff cuts were underway. in short, the mood was rather subdued in the corridors of the imf. the financial crisis led to an abrupt change. the imf was forced to quickly provide action programmes and funding for crisis countries. before the crisis, the imf ’ s lending amounted to approximately usd 9 billion, the largest part of which went to turkey. today, the imf ’ s lending amounts to around usd 112 billion, and the absolute largest part of this sum now goes to countries in europe. the media spotlight often falls on the fund when it rides to the rescue with crisis - management measures like this. but the every - day, important and tireless surveillance work of the imf seldom attracts any headlines. the imf continuously monitors all of its member countries, for example through its article iv consultations. these include in - depth analyses of the development of the economy, points out risks and gives advice on areas such as fiscal policy, labour - market policy and monetary policy. the knowledge of individual countries that the imf has built up during years of regular surveillance is a precondition for quickly being able to warn against and counteract risks and to launch tailor - made action programmes when countries need financial support. the imf extended its financial surveillance a number of years ago, but there is still more to be done. in the nordic - baltic imf constituency, 1 of which sweden forms a part, we have been a driving force on several important issues in this area. as a small, open economy with a large financial sector, sweden has every reason to support the imf in its

certain countries were asked to liberalise capital flows too early. the issue has therefore been very sensitive since then. today, however, most countries agree on the positive effects of free capital flows – that is that they contribute to increased economic growth by enabling resources to be used more efficiently. the issue of free capital flows has now appeared on the imf ’ s agenda once again. the sudden stop in capital flows during the initial phases of the crisis and the subsequent rapid increase in capital inflows into emerging - market economies have focused attention on the problem of volatile capital flows. massive inflows can lead to overheating and asset - price bubbles and as there are no clear guidelines a number of emerging - market economies have chosen to manage massive inflows by introducing a range of capital controls. the member countries have therefore given the fund the task of drawing up guidelines on how countries should manage such capital flows. this work has been underway for the last 12 months and a proposal for a comprehensive framework will be discussed by the imf ’ s executive board at the end of october. according to the proposed guidelines, countries should in the first instance review their fiscal and monetary policies in order to manage or counteract major capital flows, and as a complement to this they should use various macroprudential - policy tools. as a final resort they may introduce capital controls. the idea is that the imf should give advice on how these tools should be designed in order to be effective. no organisation has played a clear role in the liberalisation of capital flows. this is a major difference compared to the liberalisation of trade, where the world trade organisation ( wto ) played and still plays a prominent role. i think it is positive that the issue of capital flows is once again on the imf ’ s agenda as it is an important issue that requires careful analysis as volatile capital can cause serious problems. … as clearly demonstrated by the crisis in our region the need to analyse capital flows became clear in connection with the crisis in our region too. if capital flows had been systematically analysed prior to the crisis, we would have seen that capital flows to the baltic countries were dominated by bank loans from nordic parent banks to their baltic subsidiaries and not, for example, by more sustainable direct investments. perhaps this would have led the alarm bells to ring sooner and louder. in our constituency we have carried out an empirical study of iceland ’ s and the baltic countries ’ experience of capital flows and capital controls before