(Bureau of International Information Programs, U.S. Department of State) - Governance reform at the International Monetary Fund (IMF) is essential for the fund to promote global economic and financial stability as the debate about its future continues, a leading expert on the IMF says, reports Trend.
Edwin Truman, a senior researcher at the Institute for International Economics (IIE) in Washington, said that the question of what mission and objectives are appropriate for the fund as it faces the challenges of the 21st century is far from being answered.
Although IMF shareholders and private-sector economists have criticized the fund as being weak, ineffective, and unfocused, they disagree about the direction the institution should take, he said in a September 6 interview with the Washington File.
If the fund is going to play the role of a global coordinator, the lender of last resort, or any global role at all, however, it has to be perceived as legitimate by various countries, Truman said.
It is unlikely to be seen as such, he said, unless countries that have expanded rapidly recent decades have a fair share in the funds management and decision-making.
An IMF two-year governance reform package that initially would increase decision-making powers of the "most underrepresented countries comprising China, South Korea, Mexico and Turkey" will be discussed at the funds September 19-20 meeting in Singapore, according to a September 1 IMF news release.
The United States and other developed countries hope that, encouraged by this reform, emerging-market countries will take more responsibility for international economic and financial affairs, Truman said.
According to most economists, in an increasingly interdependent global economy, fiscal, monetary and exchange-rate policies of a major country can affect the international economic system as whole.
GLOBAL ECONOMY AND SHARED RESPONSIBILITIES
U.S. officials and lawmakers have argued that China and some other emerging-market Asian countries have contributed to global current account imbalances and undermined the U.S. manufacturing sector by keeping their currencies at artificially low exchange rates.
The United States has pressed the IMF to help improve this situation by enhancing its surveillance of exchange-rate policies and related macroeconomic policies.
IMF Managing Director Rodrigo de Rato recently has endorsed strengthened surveillance as part of the fund's medium-term strategy.
Surveillance is monitoring economic and financial policies and conditions in individual countries and consulting with them on the national and international consequences of those policies with the goal of maintaining international monetary stability and preventing crises.
What specific initiatives new emphasis on surveillance will produce and whether these initiatives will bring any specific result remain to be seen, Truman said. Under its charter, the IMF has authority to find that a country is manipulating its currency for an unfair advantage and to ask it to take corrective action. But it never has done so and is unlikely to do it in the future, Truman said.
Morris Goldstein, Trumans fellow researcher at IIE, argues in a 2006 paper that, unless the fund takes a more assertive approach to exchange rate surveillance, more calls for corrective action can be expected at the national level, where protectionist threats are apt to be greatest.
MONETARY UMPIRE?
Adam Lerrick, an economist at Carnegie Mellon University and the American Enterprise Institute, said that surveillance as a mechanism for the IMF to express opinions on a country's policies is desirable. But, because the IMF lacks enforcement capability, countries are not likely to pay much attention to what it tells them unless they need the fund's money or the financial markets enforce its views, he said in a September 6 interview.
"One shouldn't look to IMF surveillance as a solution to global imbalances," Lerrick said.
Truman said he believes the IMF can play the role of an umpire in the international monetary system and a coordinator of countries' economic and financial policies. This can happen only if it can become more forceful and use the practice of naming and shaming of specific countries, in addition to quiet persuasion, he said.
Such a monetary umpire is important for smooth functioning of the global economy," Truman said.
Goldstein suggested that the IMF should review surveillance guidelines and modify them if necessary, publish semiannual reports to identify countries whose exchange-rate policies raise concern and engage more frequently and vigorously with those countries through special consultations.
Another initiative recently launched by the IMF might help it to play the role of a global umpire and coordinator. The fund has begun multilateral consultations aimed at addressing global current account imbalances with major economic entities such as the United States, China, the European Union, Japan and Saudi Arabia.