G-20 met in London on 2nd April to brainstorm the way out of the current economic and financial meltdown, and came out with communiqué proclaiming global plan of recovery and reform with focus mainly on IMF. G-20 concurred to reinvigorate and reform the Fund to be able to advance credit to compensate the dried up resources of international capital inflows particularly to capital starved developing countries.
IMF has been directed to reform its governance, lending regimes, conditionality and to be even-handed to establish its relevance, effectiveness and legitimacy. The communiqué also declared establishment of Financial Stability Board (FSB) replacing Financial Stability Forum (FSF) with the mandate to collaborate with IMF to furnish early warning of macroeconomic and financial risks and also committed to reform World Bank.
Independent analysts and skeptics all around the world have, however, expressed their dismay on outcome of G-20 exercise that could not formulate any befitting plausible and feasible plan of action for global economic recovery and sustainable development and growth save a fiscal expansion plan of $5 trillion and reposing trust in IMF to steer world out of crisis.
Hence, G-20 resolved to increase resources of Fund three times to the tune of $750 billion, allowed it to allocate SDR 250 billion to its members and sell gold out of its huge reserves to provide concessional loans to poorest countries. But independent experts around the world do not share level of confidence shown by G-20 in IMF. Why people do not have faith in this Brahmin organisation because IMF, primarily, is an ideological organisation.
Its dogma is deep rooted in the religion of market economy and laissez-faire, its structure and governance is undemocratic, its bureaucracy is bleak, its research work and set of instructions do not take into account ground realities of the relevant countries and its attitude has been biased in favour of developed economies particularly USA and against developing and poor countries. Even now, its FCL regime speaks volumes about its neutrality.
IMF was born along with World Bank in the town of Bretton Woods, New Hampshire, USA on 22nd July 1944 and was joined only by 29 countries. But by now, its membership has risen to 185 to render it a near-universal organisation. Whether its structure and policies also reflect its global status is a serious question?
Representation of the members in the Fund called quota and voice depends, mainly, upon their economic standing. Core guiding document of the Fund called 'articles of agreement' can only be amended with 85 percent of the votes based on complicated system of quota and voice. All crucial decisions also require such concurrence whereas USA alone even after September 2006 Singapore changes has 16.77 percent of votes.
Hence, no important decision can be made without positive nod of USA. IMF in its October 2007 World Economic Outlook observed that China, Russia and India accounted for one-half of global growth but their cumulative representation still revolves round the figure of 8.2 percent. Even Belgium has more voting power than India.
On the other hand, out of total 10 Managing Directors none was picked up from developing countries, and all hailed from west European countries. Although, theoretically highest decision- making body is Board of Governors with one representative from each member country but practically it is either MD or 24 members Executive Board with five nominees of the original Cabal that decide the destiny of all 185 members.
It is, nevertheless, heartening to note that not only IEO and G-20 working Group-3 but Fund's own committee on Governance Reform has already strongly suggested some quota and governance reforms. Although, these recommendations are neither clear nor reflect changed and changing world scenario, however, they require urgent action, and in view of economic and political kaleidoscope, time lag to implement such recommendations should be minimal.
Yet, it is not all. Notwithstanding Fund's almost 65 years of experience and expertise and its huge amount of resources including human one, IMF could not be expected to rise to the occasion and fulfill demands placed on it by G-20. IMF, interalia, brings out two half yearly editions of World Economic Outlook (WEO) in months of April and October and their two updates in the months of July and December respectively and all these publications are available on website of IMF.
Just give a look to forewords and executive summaries of the last 3 years and find yourself quality of the assessment and contradictions in them. Or visit sub-site of IEO and peruse the relevant reports. Why to demonise IMF after all? Is it fair? Yes, not only it is right to do but it is imperative to help the Fund climb on the track. Availability of resources is of utmost importance but more important is right direction and orientation.
IMF must amend its article IV, for consultation under same article and assessment attached to conditionality render ministers and senior bureaucrats of respective country suffer from nightmares. Surveillance is one of three main functions of IMF. Other two are lending and technical assistance.
Fund is 'authorised' to monitor international monetary system and monetary and economic policies of the member countries. Fund advises how to increase revenue through taxes and how to decrease subsidies but rarely provides advice as to how to drag down expenditure on servicing of debt and other important non-development expenditures.
To live in present and to be able to look into future, Fund must recognise developing and poor countries as important stakeholders and future contributors to global economy and human civilisation, and transform its surveillance into partnership with these countries. Partnership that focuses on detailed study of local ground realities with the active involvement of local experts and stakeholders.
But neither the Fund alone can nor it is prudent to expect from it to stabilise the world economy and put it on desired trajectory, for it is simply beyond its scope and its capacity hence, a new Global Board for Political and Economic Integration should be created that must work directly and indirectly, through existing UN and other organisations, with all stake holders and devise methods and strategies for Inclusive Development and Growth, for neither the economic resources particularly its human component are scarce nor economic wants of the human beings are unlimited. Issue is of organisation, regulation, management and correct mechanism of resource allocation.