An
Independent and Accountable IMF
Geneva
Reports on the World Economy 1
This
report analyses the increasingly severe financial crises in emerging
markets that have punctuated the final years of the twentieth century.
Its focus is the International Monetary Fund (IMF). How
well has the Fund done in predicting, averting and managing the new
‘high-tech financial crises of the twenty-first century’?
These crises have become more violent, disruptive and difficult
to predict and manage because they are now centred in the capital
account in contrast with earlier crises which were rooted in
imbalances in the current account.
The Report concludes that the IMF has yet to integrate this
evolution into its diagnoses, procedures and conditions.
Critically, as crises are now likely to mostly concern
developing countries, the IMF’s governance is inadequate and needs a
serious overhaul.
To
date, the Fund's response to crisis has been to rely on ever larger
and more heavily front-loaded loans, disbursed more rapidly and
accompanied by conditionality that mixes old-fashioned macroeconomic
adjustment with deep structural interventions. Whether this approach
is appropriate to today's new circumstances remains open to question.
The new IMF emphasis on data dissemination and transparency is
welcome. But the belief that this will strengthen market discipline
sufficiently to head off crises before they start is naive. There are
also good reasons to doubt that the Fund's aim to identify reliable
early warning signals of impending crises is likely to succeed.
The
Fund must rethink both its traditional recommendation that crisis
countries impose tough monetary and fiscal policies and the tendency
to throw more money at problems which have changed in nature.
Restarting an economy in the midst of a severe credit crunch
may require a wholly different approach, including restructuring
foreign currency debt – both public and private – and the adoption
of reflationary measures.
Another
issue is whether the Fund has succeeded in adapting its staff and
governance strucutre in a way that allows it to cope with these new
challenges. There is a
strong economic case for the IMF to continue to play a major
international role but the way it is run seems to be anachronistic and
must be reformed.
In
particular, the role of the Executive Board is unsatisfactory. Directors
are often overwhelmed by IMF staff and their considerable agenda-setting
power. Furthermore, the
Executive Board’s decision-making is driven by national agendas,
specifically those of the principal shareholders.
To
rectify these problems, the report makes the following proposals:
-
The
IMF should be made truly independent and accountable. Insulating the
Executive Board from the politically driven agendas of national
governments would permit it to focus more efficiently on
surveillance and conditionality. This requires amending the Articles
of Agreement on which the Fund is founded.
-
But
independence would be counterproductive without adequate
accountability and transparency. The Interim Committee is the
logical body to provide oversight of the Fund and hold the Executive
Directors accountable for their decisions. If it were given the
power to remove Directors who pursue private agendas, the Interim
Committee could fulfil these roles. In this way, the power not only
of the Board but also of the Interim Committee would be strengthened
while at the same time creating a clear separation of roles and
responsibilities.
-
The Board
should be accountable not only to governments but also to the public
at large. Publishing detailed minutes of Board meetings, requiring
decisions through voting rather than consensus, and publishing
voting records of the Executive Directors would move the Fund into
the modern era of transparency.
-
The
perception of excessive influence from the US Treasury - unavoidable
given its geographical and intellectual proximity to the Fund -
would be lessened by reducing from 85% to 80% of votes the current
‘supermajority' needed for the most important IMF decisions.
The
Geneva Report on the World Economy is the first in a series
sponsored by The International Centre for Monetary and Banking Studies (ICMB),
Geneva, in conjunction with the Centre for Economic Policy Research (CEPR).
It is produced by ICMB and available from CEPR.
Please
refer to this as a report published by the ICMB.
José
De Gregorio
is Professor of Economics at the University of Chile.
Barry Eichengreen is
John L. Simpson Professor of Economics and Political Science at the
University of California, Berkeley and a Research Fellow in CEPR’s
International Macroeconomics and International Trade Programmes.
Takatoshi Ito is
Professor of Economics at Hitotsubashi University.
Charles Wyplosz is
Professor of International Economics at the Graduate Institute of
International Studies in Geneva and Director of CEPR’s International
Macroeconomics Programme.
An
Independent and Accountable IMF
Geneva Reports on the World Economy 1
£25.00
Available from
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