First, macroeconomic policies need to be adjusted pragmatically and where appropriate, swiftly. We do not simply mean that policy must be loosened but rather authorities ought to consider carefully their full range of options, giving due regard to the circumstances they find themselves in. For instance, in an environment where credit markets have ceased to function, monetary policy alone cannot do the heavy lifting needed to stabilize economic conditions. Second, swift action to clean up the balance sheets of financial institutions is very important to allow the financial system to resume its key intermediation role. Third, reforms, be they structural, legal, regulatory or accounting, should be an important part of the medium-term agenda, as they would serve affected countries well going forward. Not only should regulators be alert and vigilant in systemically important markets, they also need to keep up with the rapid pace of innovation. Finally, there needs to be a multilateral effort to improve transparency, standards and the quality of regulation. We welcome the work being undertaken by all parties in the Financial Stability Forum, of which the Fund is a key member, and expect the results will prove illuminating. 7. In drawing these conclusions, we must remember that we cannot entirely exempt ourselves from the booms and busts in credit markets, but instead recognize that sound regulations and prudent capital market practices can play a role in alleviating these cycles.
In this connection, we underscore the importance of future realignment of quota shares on a periodic basis, beginning with the Fourteenth General Review of quotas, as is currently proposed in the package. We maintain that PPP GDP and compression factor should remain in the formula for it to credibly capture the dynamic contribution and relative economic size of countries in the world economy. We also support the future work program, in particular further refinements to the definitions of openness and variability to guide future realignment of quota shares. 12. The New Income Model is also a critical element of the Reform Package, without which the Fund cannot discharge its functions properly. We are pleased to note the broad  BIS Review 51/2008  3  consensus on the core elements of the proposed new income model for the Fund and are prepared to give our support to the emerging package. We would simply underline the importance of establishing the necessary governance arrangements that allow the Board and the Management to deal effectively with the risks that broadening the Fund’s investment mandate will undoubtedly bring. We are also pleased to support the limited sale of Fund gold to establish an endowment to generate income. In fact, we see this as a critical component of the new income model, without which it may be difficult for the Fund to close its budget deficit. We look forward to a prompt resolution on this issue, particularly from the major shareholder. Strategic directions 13.