The Chance of a Lifetime

First, there should be clarification of who is responsible and accountable for the delivery of global financial stability: this public good should ultimately be centralized in an international organization. The IMF is working hard to be that organization. It should be given the task, but only after it achieves a critical mass of reforms that allow the institution to be a legitimate, trusted and knowledgeable adviser. In the meantime, the G7 should be dismantled and the temporary role of international policy coordination should be assumed by a new "G10" grouping of countries consisting of the old G7 (minus Canada and Italy) and five systemically important emerging economies (Brazil, China, India, Russia and South Africa).

Second, we need to identify the political force that can ensure appropriate follow-up and arbitration. This function naturally resides with the United States. With the election of Barack Obama, America is now uniquely qualified for the task. The president-elect promises intellectually driven change in a world very much inclined to accept his leadership.

Third, we need new structures that recognize that economic well-being and financial stability are two sides of the same coin. For too long, these factors have been treated as distinct among policymakers and effectively pigeonholed in different international organizations (such as the IMF and the Financial Stability Forum).

Finally, there must be agreement on ways to manage the next crises: reform can reduce, but not eliminate, the probability of future crises. Accordingly, we need better clarification on how any future financial burdens of crisis resolution might be shared.

The financial crisis has given the world a rare opportunity to address some longstanding weaknesses. The outmoded multilateral framework can and should be modernized and rendered more legitimate, representative and accountable. Let us all hope that this opportunity is seized and that the outcome is judged in terms of clear performance metrics rather than wonderful speeches and nostalgic labels.

El-Erian is co-CEO and co-CIO of PIMCO. His recent book, “When Markets Collide,” won the Financial Times/Goldman Sachs 2008 Business Book of the Year award.

© 2008