There was a time not so long ago when financial developments in one country had little impact on others. Today, we live in a very different world — one defined by increasing economic integration and financial globalization. Countries can no longer afford to face economic challenges single-handedly. Fortunately, they don’t have to do so.

The recent turmoil in financial markets illustrates vividly both how widely risks are shared and how collective action provides the best response. The crisis stemmed from the US subprime-lending crisis and spilled over borders with great rapidity. It had implications for everyone — from loan originators in the United States, to banks in Germany and the United Kingdom, to borrowers in Eastern Europe, and ultimately exporters in Asia and Africa.

Experience has taught us that the most effective response to such crises lies in a multilateral setting. For recent turmoil this includes the way we monitor and regulate the international financial market. But the same principle applies to the way we tackle other challenges, whether it involves the way we correct global payments imbalances or seek to prevent economic crises. It has to do with the way we come together to reduce poverty, reform trade, how we manage fast aging populations, and how we deal with climate change.

Few global institutions are as well suited to deal with today’s cross-country economic and financial challenges as the International Monetary Fund. Recognizing this, the IMF has been reforming itself to become a more legitimate and relevant institution for the 21st century. And this is a positive development, as reflected at the recent annual meetings of the IMF and World Bank in Washington this past week.

Representatives of the IMF’s 185 members welcomed the way the fund is adapting to meet the demands of today’s changing world. First, on the question of legitimacy, the institution is reforming its own governance structure. There is increasing convergence among IMF members on key elements of a new way of determining members’ quotas — or shareholding — in the fund, and consensus on the need to increase the share of emerging market and developing countries as a whole.

There are several ways in which we are strengthening the relevance of the fund to our members’ needs.

Driven by the need to address global imbalances, this year also saw the successful completion of the fund’s first multilateral consultation, a new forum for discussion among members of the international community who share an interest in crucial economic issues. China, Japan, the Euro area, Saudi Arabia and the United States all took part in this first multilateral consultation. The exercise is enabling the fund and its members to agree on policy actions to address the vulnerabilities that affect individual members and the global financial system.

The first multilateral consultation highlighted the need for a shared responsibility in a number of areas in order to facilitate an orderly unwinding of global imbalances while sustaining global growth: A boosting of national saving in the United States; further progress on growth-enhancing reforms in Europe; further structural reforms and fiscal consolidation in Japan; reforms to boost domestic demand in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries; and increased spending consistent with absorptive capacity and macroeconomic stability in oil-producing countries.

Looking forward, there are many areas in which the fund, given its universal membership and mandate, remains well placed to provide a forum for further discussion and cooperation among its members. Financial stability issues are one such area. The fund’s extensive research program in this area is aimed at deepening its understanding of the nature and extent of vulnerabilities in the global financial system, their macroeconomic effects, and implications for stability of capital flows to emerging and developing countries. These changes are reflected in increased demands for IMF technical assistance and for the fund’s assessment of the strength of countries’ financial sectors.

The IMF has also been improving the focus of its work on low-income countries for some time. This includes improving its projections of aid inflows and making sure that countries have the fiscal space they need to expand social programs, especially in health and education. It has enhanced its valued technical assistance work, including the opening of a third technical assistance center in Africa. And it is deepening collaboration with the World Bank in areas that are key to promoting higher growth and greater poverty reduction in low-income countries.

In the Middle East, which encompasses countries in both the low— and middle-income brackets, the IMF is equally active in the provision of technical assistance. It established a Middle East Technical Assistance Center in Beirut in 2004 and this is serving ten countries/territories in the region. The center’s close cooperation with regional organizations and other technical assistance providers helps promote effective implementation of economic initiatives in the Middle East. Last but not least, the IMF is well advanced in designing and reaching a much needed new income model. It has been implementing medium-term budgeting and has drawn up a budget that will cut expenditure by six percent in real terms over a three-year period. It is now looking at reaching consensus on policies that will anchor income and expenditure for the future.

I have had the privilege to lead the International Monetary Fund for the last three and a half years. The reforms underway are part of an evolutionary process. I have no doubt that my successor, Dominique Strauss-Kahn will keep the fund acutely relevant in the years ahead, so that with its enormous expertise, it stays in step with the demands of a changing world.

— Rodrigo de Rato is the outgoing managing director of the International Monetary Fund.