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The London G20 summit gave a strengthened mandate to
the IMF, while tripling its resources. More
concessional finance will be available for
low-income countries, and international liquidity
will be increased by a hand-out of 250 billion
dollars in special drawing rights (SDRs). This is a
boost for the IMF, and it gives hope to emerging and
developing countries that have been severely hit by
a crisis that originated elsewhere.
The IMF is well-positioned to help its members
overcome the financing gaps resulting from the
crisis. In the run-up to the G20 summit, access to
the Fund’s credit facilities was increased and
policy conditions were streamlined. In a watershed
with former practice, a new non-conditional credit
line was introduced for well-performing countries.
Mexico and Poland will be its first users and more
countries will line up. These more flexible lending
policies reflect a new image of the IMF. The
negative stigma attached to IMF financing is a thing
of the past.
Its financing role in this crisis secured, the IMF
now needs to strengthen its position as guardian of
an open international financial system. The IMF was
created to prevent crises like the current one and
in this it has failed. Admittedly, there were
warnings, but policy makers, particularly in
advanced countries, did not follow suit.
The ‘new’ IMF should be an institution that
communicates better with its members, balances the
interests of its advanced, emerging and developing
members in an even-handed manner, and aligns its
policies better to the needs of the moment. Now that
the IMF has been given a second lifetime, it needs
to regain its central position in the international
financial system. For this, it needs to focus on
three issues: improved surveillance of financial
stability, strengthened international coordination,
and an updated decision-making process.
The new IMF needs to become more vocal on global
financial stability issues. The IMF should see to it
that there are no gaps in the surveillance of
financial institutions. It can help shape a more
robust global supervisory system, which needs to be
built in order to preserve the benefits of global
financial markets. And it should help develop a
vision on what the future financial landscape should
look like.
To this end, IMF surveillance should include regular
updates on supervisory regimes in systemically
important countries. Early warnings, commissioned by
the G20, should be specific and the IMF should
monitor whether policymakers give follow-up to the
Fund’s advice.
The new IMF needs to take a fresh look at
international policy coordination. The demand for a
different monetary order, as advocated by China,
sets the stage for a renewed effort to avoid the
international imbalances which were at the root of
this crisis.
First, the US saving deficit will need to be
addressed in a sustainable manner. Second, China
will have to make its currency convertible. Third,
the position of the euro will strengthen over time
as more countries will join the euro zone.
With more key currencies in place, the perspective
of a truly multi-polar currency system comes in
sight, with an increased role for the SDR. This will
lessen the need felt by emerging economies for
self-insurance against financial instability, by
building up large reserves.
Finally, the new IMF needs governance structures
that better reflect today’s new global realities.
The perception that advanced countries are running
business in the Fund, but do not adhere to Fund
advice, has undermined the IMF’s authority.
The G20 summit marked the return of the United
States to multilateralism. This acceptance of
collective responsibility should come with
abandoning US veto power in the IMF by lowering
required voting majorities, as well as abandoning
Europe’s prerogative of appointing the Managing
Director. One of the strengths of the IMF’s present
governance structure, the constituency system,
should be duplicated at the G20 as well, so as to
ensure inclusiveness.
The rapid growth of China, India, and other emerging
countries should come with increased influence, to
be implemented through the planned quota increase in
2011. Advanced countries, including European
countries, will see a relative decrease in voting
power. An increased say for emerging economies will
imply taking more international responsibility as
well, also in financial terms.
Now European countries finance 42pc of IMF lending
and 62pc of concessional World Bank lending. This
task will have to be shared by emerging countries
with large reserves. These reserves are put to
better use by assisting the IMF in maintaining an
open and stable financial system and prevent crises
like these from recurring. |
