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The IMF is outdated, Eisuke Sakakibara, former Japanese vice finance minister for international affairs, told Emerging Markets.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 I think it is outdated.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.