The International Monetary Fund (IMF) said in a major review of its activities Monday that it has been pulled too far from its six-decade-old mandate of policing the global financial system.
The review covering the IMFs activities for the next three to five years is to be presented at the IMFs annual meeting next weekend in Washington, writes the World Bank press review Tuesday.
A raft of hefty bailouts of countries suffering liquidity crises in the 1990s spawned a host of follow-up work that took the IMF onto uncharted territory, as did the September 11 attacks of 2001.
The interim review, which was commissioned by IMF chief Rodrigo Rato after he took office last year, said the Fund needs to refocus its energies on keeping tabs on emerging dangers in the global financial system.
– The role of the IMF is to advise and support countries in achieving macroeconomic and financial stability, Rato said adding: – Of course to do that in 2005 is not the same as to do it in 1946, and we identify many reasons why that is different: one of them clearly is globalization.
The report acknowledged disquiet in parts of the world about the IMF’s legitimacy, especially in Asia, where Indonesia, South Korea and Thailand received huge bailouts after financial crisis hit the region in 1997. The IMF has become too embroiled in anti-poverty work that has traditionally been the domain of its sister organization, the World Bank, the review also said.
While the IMF has simplified borrowing conditions for its programs, IMF teams continue to base reviews of non-borrowing countries on boiler plate checklists and lengthy questionnaires.
Public reports of these reviews are cluttered with policy prescriptions for a wide range of economic issues. This approach risks creating too many priorities, obscuring the urgent challenges, Rato said. The IMF also must establish more effective communication and become a better advocate of sound economic policy, he said.
“All too often, there is no basic disagreement on diagnosis and first-best policy prescriptions, but change is held back by politics,” the IMF report said. Some recommendations for fostering public debate include more up-to-the-minute seminar programs, more media events and press conferences following regular reviews of the non-borrowing countries.
“Such engagement with civil society carries obvious risks, but also the prospect of policy advice better attuned to the specific situation in each member country,” the IMF said.
The report further said Fund voting procedures need to be reviewed to give more weight to developing countries, particularly in Asia and Africa, but Rato said debate on how to achieve that was still at an early stage.
Rato said the Funds legitimacy as a global organization rests on a fair allocation of quotas, capital shares in the IMF on which voting is based. He added the next quota review, scheduled to be completed by Jan. 30, 2008, presents an opportunity to come to grips with quotas.
Critics say power at the IMF remains with the US and other Western countries who founded the organization. Rato said consideration also should be given to reallocating chairs on the institutions 24 member executive board.
– With the requisite political will, it is possible to find a solution that gives more vote to countries that now account for a much larger share of the world economy and more voice to smaller members that now account for a much larger share of the Fund’s work, Rato said.
The US has just over 17 percent of the total votes. The EU countries have 30 percent of the votes. Chinas economy accounts for just over 4 percent of the world economy, at market prices, but its quota is less than 3 percent.
South Korea accounts for 1,7 percent of the world economy and its share of the vote is 0,76 percent. Any change in the quotas requires 85 percent of the votes of the board – meaning that the US can block any change that would require it having to put up more money.
Emerging market countries in Asia have long sought a change in the voting rights of the IMF and World Bank, calling for adjustments to the quota formula to accurately reflect their growing stake in the global economy. Africa has argued it is under-represented in an institution that is heavily engaged on the continent.
Critics have said that unless developing nations are given more say in the decision-making processes, they will simply stray from the fold of the IMF and World Bank. Some critics argue that Asian countries have already started moving away from the IMF, accumulating vast reserves so they can cope with future crises independently and without the Funds help.
Finally the report said Rato has set up a review of the Funds budget that will look at whether it should invest its capital to earn higher returns to finance its operations at a time when it is doing less lending.
The report also said more effort should be put into giving early warnings of coming financial market problems in emerging countries. The Fund needed to reassess the role it plays in crisis resolution and its lending into arrears policy.
Kilde: www.worldbank.org
