International Monetary Fund (IMF) MD Dominique Strauss-Kahn on Tuesday called for greater global cooperation in regulating the world's financial systems.

Addressing students and academics at the University of the Witwatersrand in Johannesburg, he argued that alignment in the global governance of the financial markets was critical in order to mitigate the effects of potential future crises and other market shocks.

Strauss-Kahn, on a three-day visit to Africa, said that the world had learnt important lessons resulting from the global financial crisis. The first was that the crisis had demonstrated a "very interconnected and globalised" world in which a market shock in the US would affect Africa, and anywhere else on the globe. This was owing to the large exchange of capital flow and movement of finances in the global economy.

He argued that Africa, in turn, had become the "innocent victim" of the crisis and was hit particularly hard owing to its reliance on primary commodities, remittances, as well as a drying up of foreign investment. It was this reliance on international markets that made Africa particularly vulnerable to the economic downturn.

The second lesson that the crisis demonstrated was that the credit crunch had not only affected the financial sector, but also the real economy, in that no economic sectors were left untouched and the normal consumer felt the pinch.

However, Strauss-Kahn pointed out that a number of African countries, including South Africa, were able to mitigate some of the worst effects from the crisis owing to their strong fiscal policies and high levels of public expenditure. Although these polices, along with high levels of inflation, led to large current public account deficits, countries employing these policies were able to avoid large scale bail-out packages and their banking sector remained to a large extent intact. The fact that fiscal stimulus policies were relatively well established in the South African economy, meant that they acted like a buffer against the crisis to a certain degree, Strauss-Kahn argued.

He said that South Africa had implemented the correct policies in dealing with the crisis, which included policies of inflation targeting, the measured easing of monetary policy and a comprehensive fiscal stimulus programme. Although it was too early to assess the full effects of the economic downturn, he argued that it would be premature for countries to start exiting stimulus packages.

On the domestic front, he argued that employing policies that devalued the rand through a decrease in interest rates, were a "short-sighted" approach to curbing South Africa's unemployment. In addition, he called for added competition in the country's banking sector.

COOPERATIVE GLOBAL GOVERNANCE

The fact that the financial crisis originated in the US property market represented the large-scale impact that the country's economy had on the globalised world. From this rationale, Strauss-Kahn called for greater cooperation and coordination in employing macroeconomic policies that mitigate effects of global financial shocks.

Although countries would deal with domestic political pressures before addressing international economic demands, he urged civil society to apply public pressure on governments to implement such policies in order to avoid another large-scale crisis.

Although the IMF could not be the supervisory and oversight body to enforce greater regulation, it could only recommend certain policies. Strauss-Kahn, however, called for international political buy-in from governments in order for existing entities such as the Financial Stability Board among others to provide the regulatory and oversight services.