Six decades after it was created to inject stability into the ruins of the post-war financial system, the IMF is today trying to forge a new role that better represents a globalised economy.
The International Monetary Fund is expected to adopt an interim voting reform to give a greater say to four countries at its September 19-20 annual meetings, held with its sister institution, the World Bank.
The share of IMF votes given to China, South Korea, Turkey and Mexico has fallen far behind the four countries' economic influence. Without a greater say for such emerging players, the IMF argues that it risks becoming irrelevant.
But beyond the annual meetings in Singapore, IMF chief Rodrigo Rato wants deeper reforms by 2008 to remodel a World War II-era institution that remains dominated by the United States, Japan and Europe.
Rato said Friday that his strategy "is motivated by the central insight that the world is changing fast, and that the Fund needs to adapt to help our members deal with the challenges of 21st century globalisation".
"If the Fund is to remain relevant to its members, both its work and its governance structure must be adapted to these new realities," he said in a speech delivered in Canada.
The IMF was created in 1945 as a lender of last resort when its members, which now total 184 economies, ran into balance-of-payments crises. At the same time the World Bank was create to fund development in poorer countries.
From 1997, the IMF achieved new prominence as a series of Asian countries crashed as a result of a region-wide financial crisis. Its bailouts of Indonesia, South Korea and Thailand did much to restore calm. But IMF-imposed policy strictures contributed to a clamour of criticism from campaigners that both the Fund and the World Bank were cruel and out of touch with the needs of poorer countries.
The IMF says it is now more eager to listen to the voices of low-income nations, but remains hobbled by criticism that its tough stance on inflation squeezes out spending on health and education in its client countries.
"The US can ignore the IMF. Zambia can't," said Debi Kar of the Jubilee USA Network, which campaigns for debt relief.
"The IMF itself should work on its original mandate of balance-of-payments crises rather than dictating the whole range of economic policies to poorer countries, which just aren't in its job description," she said.
In any case, some countries such as China have built up such enormous reserves of foreign exchange that many doubt they would ever need to heed IMF advice in the event of a crisis.
China's growth has created a headache that the IMF, prodded by the Group of Seven club of rich nations, is keen to address.
That is the "global imbalances" that result from China building up a vast pool of savings on the back of export-led growth, while the United States remains ridden by deficits and a zero savings rate.
Rato is trying to make the IMF a policeman for "multilateral surveillance" of the world economy. Rather than waiting for a crisis to erupt, the Fund would be in the vanguard of consultations to prevent disruption in the first place.
"The risk is that if nothing is done, imbalances will not be reduced gradually, but suddenly, and in a disruptive way," he said in his speech Friday.
After the shocks in the late 1990s, the IMF now has less needy clients than for many years, again raising questions about its relevance.
Rato has proposed a new IMF liquidity fund for emerging countries that have strong fundamentals but remain vulnerable to shocks. To burnish its anti-poverty credentials, the Fund has also erased 3.3 billion dollars in debts owed by the world's poorest countries.
Comments
Comments are closed.