— by Inya Ivkovic, MA
The International Monetary Fund (IMF) appears to be sadly in need of an extreme makeover. At the end of it, IMF is envisioned to be this large, powerful and extremely well-funded UN-like entity, capable of preventing deep global financial crises, the kind we are in right now, as well as having a far-reaching policy and enforcement hand. Yeah, right!
Talk is truly cheap when it comes to the IMF reform. For the past four years or so, that’s pretty much all that has been done — talking incessantly and having next to nothing to show for all that verbiage. To illustrate, about a year ago and after who knows how many meetings, all that the IMF reformers managed to come up with was a no-teeth package of changes, which involved selling some of the gold reserves, tinkering a bit with the fund’s voting shares, and increasing financial contributions to the fund by a little less than 10%.
What seems to be the trouble? Why can’t the IMF reinvent itself to become more adaptable to the ever-changing financial world and to design an actual role to play for itself? The bottom line is that, even in an ideal world, the IMF is going to be only as good as its members want it to be. The crux of the matter is that very likely what the U.S. and EU want the IMF to be may be vastly different from what China, India or Brazil may want. To make matters more complex and contradictory, the two main areas of reform — governance and the scope of regulatory powers — more often than not, are on a direct collision course.
The IMF is a venerable institution living through its seventh decade since inception. Yet, despite its ripe old age, it still lacks legitimacy. How so? After 64 years of existence, the IMF still does not accurately either represent or reflect its member countries that have grown into significant players in the global economy, nor does it represent the countries of this world that need its help.
To illustrate, countries in the emerging markets, led by China, India and Brazil, have been demanding for years that the IMF make a clear split between those that are net lenders and those that are net borrowers, and assign voting rights in the fund accordingly. Of course, the IMF’s largest shareholders, which belong to the developed world, beg to differ. The financial power has shifted in the past few decades, whereby the emerging economies proved better at saving money and having some to lend out, while the developed economies mostly had lost their positions of economic supremacy and are now the world’s largest net debtors. Of course, they don’t want that shift to be openly acknowledged, nor do they want to see its consequences actually play out.