Nations Cast Plan for Expanded IMF
Wednesday, October 7, 2009
LONDON, Oct. 6 -- The push to reinvent the International Monetary Fund took a significant step forward this week, with nations agreeing to a rough timetable to come up with plans to reform its governance and expand its role in the global economy.
The agreements, reached during the IMF's semiannual meeting in Istanbul that ends Wednesday, come as the mission of the 65-year-old Washington-based institution is re-examined in the wake of the global financial crisis. The fund's 186 member nations agreed to draft a new and broader mandate for the fund before its meeting in Washington next spring. The nations also preliminarily agreed to reshape the fund's voting structure, promising a blueprint for giving more clout to emerging giants like Brazil and China by January 2011.
Yet if the past few days in Turkey were any gauge, the IMF's road to change may also be a rocky one.
Since the meetings opened Saturday, nations have clashed over the scope of change at the fund, with some, like Germany, warning against the creation of a kind of global central bank armed with massive assets and influence over world economic affairs. It has set the stage for a tug of war of ideas and a battle for influence within the organization as it seeks to reinvent itself in the months and years ahead.
Dominique Strauss-Kahn, the IMF's managing director, urged countries in Istanbul on Tuesday to "seize this opportunity to shape the post-crisis world," adding that all nations "need to adapt and change."
"In this modern globalized world, it no longer makes sense for global economic policy to be the concern of just a small group of countries," he said.
A Power Shift
At a major summit in Pittsburgh last month, leaders from the Group of 20 major economies, including President Obama, reiterated calls for an enhanced global role for the IMF. One fundamental change would be in the ranks of nations that call the shots there.
Founded in the wake of World War II, the IMF has served as a lender of last resort to countries in financial crisis -- most often developing nations -- through rescue packages that often came with strict demands for fiscal restraint and free-market reforms. The United States, Europe and Japan -- the major contributors to the IMF -- have held the most sway over those decisions, including which countries received money, how much and with what kind of strings attached.
Although the IMF has begun easing its lending restrictions and conditions to cope with the global economic crisis, the "new fund" would give emerging economies more long-term say over the IMF's policies and lending practices. It would do that by redistributing voting rights within the fund, giving a roughly 50-50 split to the developing and developed worlds.
Yet who gains, and who loses, is in hot contention. Those set to suffer most are smaller European nations -- such as Belgium -- which hold about as much voting rights within the IMF as China. But even larger powers, such as Britain, voiced a measure of alarm this week at the notion of their clout being diluted, while China and others fiercely argued that they should be awarded even more power.
"It is a nonsense to continue with a situation where representation is modeled on the economic realities of the immediate postwar years rather than those of the early 21st century," Alistair Darling, Britain's financial chief, told reporters in Istanbul. "But those that make substantial donations and contributions to the IMF should remain represented."
Storing World Reserves
Just as divisive is how to recraft the IMF's mission in the wake of the crisis.
Over the past two years, the IMF has been the center of the effort to more closely monitor economies around the world to prevent a repeat of the current crisis that started in the United States. To beef up the fund's ability to cope with meltdowns from Eastern Europe to Africa, leading nations have committed hundreds of billions of dollars to the fund's war chest in recent months. Diplomats, however, agreed in Istanbul to study whether the IMF should now be armed with far more, perhaps even allowing it to serve as a depository for world reserves.
Such changes, however, would take years to unfold. What could come more quickly, though, is a heightened mandate for the fund as a global monitor of economic policies both in the developed and developing worlds.
It has been key to coordinating national efforts thus far to combat the crisis, coming up, for instance, with targets for fiscal stimulus spending. This week, world financial chiefs asked the IMF to draft new guidelines for an "orderly and cooperative exit" from that spending when the time is right. The fund is also being asked to study offering more bank-like services to well-run developing nations, perhaps allowing them to pay a fee for the right to access quick and easy loans.
Yet many nations, including the United States, remain cautious of vesting too much power with the fund, and few in Istanbul this week were talking about granting it any powers to enforce its decisions.
"The key problem the fund faces in getting its advice taken seriously by major economies, both advanced and emerging, is the lack of even a symbolic enforcement mechanism," said Eswar Prasad, senior fellow at the Brookings Institution. "None of the major economies seems enthused about giving the fund any real power."