CAMBRIDGE, England(The WSJ)—International Monetary Fund Managing Director Dominique Strauss-Kahn stressed the need to maintain momentum in financial reforms, warning of the risks posed as countries’ approaches diverge.

In a speech in Cambridge on Saturday, Mr. Strauss-Kahn said that, as the world economy becomes more interconnected, international policy coordination will be important to secure “stable, strong and balanced” economic growth.
He also cautioned that global economic imbalances are likely to widen again unless policies are implemented that encourage new sources of growth to emerge.
“Many countries are approaching…big-picture reforms from different directions and at different speeds,” Mr. Strauss-Kahn said at the inaugural conference of the George Soros-sponsored Institute for New Economic Thinking.
“This presents a great risk of uncoordinated policies, distorted capital flows and regulatory arbitrage,” he said.
On a related point, Mr. Strauss-Kahn acknowledged the importance of plans to handle large and complex financial—so-called too-big-to-fail—institutions, but noted that proposed mechanisms may be limited by national borders.
In addition to the creation of a European Resolution Authority, as he previously proposed, “a solution is also needed on a much broader international scale,” he said.
He added that an international approach would also be useful in deciding whether to tax the financial sector, to help prevent major inconsistencies in policies.
The IMF is assessing whether it can further refine its financing instruments, including the flexible credit line, to “more effectively” meet members’ needs, he said.
In his speech, Mr. Strauss-Kahn didn’t address expectations that the details of an international financial aid package for Greece will soon be announced. Euro-zone finance ministers will hold a conference call on the subject Sunday.
But he underscored the need to do more to prevent public debt from building up to high levels in the future, by more aggressively using cyclical upswings to refinance debt, via medium-term fiscal frameworks, credible commitments to reducing debt-to-GDP ratios, fiscal rules with escape clauses for recessions, and transparent fiscal data. Automatic stabilizers could also be refined.
“One idea would be to let certain taxes or transfers be triggered when a threshold value for a particular macroeconomic variable, such as GDP growth, is crossed,” Mr. Strauss-Kahn said.
As an example, he suggested that governments could activate temporary measures such as a flat, refundable tax rebate, or a percentage reduction in a taxpayer’s liability to help spending by low-income households.
“To support investment by firms, cyclical investment tax credits might help. Similarly, on the expenditure side, one can think of temporary transfers targeted at low-income or liquidity-constrained households,” he said.