The International Monetary and
Finance Committee (IMFC), which meets today to debate IMF
reform, faces a challenge from senior figures in the world
financial community who question the Funds relevance.
Former US Treasury secretary Lawrence Summers told Emerging
Markets: The IMFs situation has some
resemblance to that of a dentist. On the one hand its a
wonderful thing to have fewer cavities, but on the other
its more difficult to meet ones budget.
Increasingly for the IMF
financial stability has got to be less about fiscal policy and
budget deficits and more about the intricacies of financial
systems and thats going to require hiring a somewhat
different staff approaching things on a much more timely
basis, says Summers.
The IMF is outdated,
Eisuke Sakakibara, former Japanese vice finance minister for
international affairs, told Emerging Markets. I
have been very critical of the IMF, and I still am, said
the former Mr Yen, who tried to launch an Asian
Monetary Fund ten years ago. I think it is outdated.
Fundamental reform is necessary, but that seems really
difficult because of vested interests. I dont see any
significant role for the IMF, particularly in Asia.
Reform is needed, not only
with regard to the IMF but also to the G7/G8 framework,
Sakakibara said. I was a participant in those fora and I
am very disappointed that both have deteriorated, both in
quality and in terms of the role they can play.
The IMF is based upon
Anglo-Saxon cultures and resistant to understanding other
cultures, he says. The laws of economics may be the same, but
cultural differences make for variations in the
interactions between politics and economics, he argues.
The IMF intervenes in the politics of many countries and
so they need to understand these things.
Even if envisaged IMF reforms
occur, Sakakibara has little faith in the outcome: Even
if quota changes are made, these are very minor. IMF managing
director Rodrigo Rato defended the Funds reforms in an
interview with Emerging Markets. These reforms centre on
enlarging and redistributing quotas (shareholdings in effect)
within the IMF and on strengthening its role in multilateral
surveillance of members economies.
Quota reform will represent
a shift of voting power, at minimum of 10%, but, of that,
some industrial countries and some emerging economies will
benefit, said Rato. I think that these last 12
months have narrowed down differences and established a
consensus and has established minima of change.
On surveillance, Rato said:
What is important is that we have, for the first time in
the history of the Fund, had a comprehensive decision about
surveillance. We have made clear that external stability to
discuss with member countries and that exchange rate policies
are at the centre of that discussion.