The role of the IMF: a guide to the reports

Many of the discussions on a new international financial architecture that were spawned by the east Asian crisis have dealt with the future role of the International Monetary Fund (IMF). The article suggests that we have heard many calls in recent months for the Fund to get back to basics or to focus on its areas of core competence, which everyone agrees lie in macro policy, crisis avoidance, and crisis management.

The reform program laid out in this article intends to encourage the IMF to take this route 'back to basics. This would not only return the Fund to the areas of its core competence, but it would strip the Fund down to two lending facilities, one designed to allow countries to replenish their liquidity when faced by exogenous shocks, and the other to help countries respond to crisis situations.

It recognizes that in a world of high capital mobility this is almost bound to involve debt restructuring, and therefore calls for countries applying for an IMF loan to impose a standstill on debt service payments, an approach that would deal once and for all with the danger of creditor moral hazard.

It suggests the use of variable interest rates on loans to build an appropriate pattern of incentives for member countries to choose policies that would minimize the danger of their encountering a crisis, and that would enable and encourage them to repay the Fund promptly when they found it necessary to borrow. While it returns the Fund to its areas of core competence, these are ones that are of major importance to even the poorest members of the Fund, ensuring that the IMF would continue to play a vital role in the world economy.