Global institutions
Reform of the International Monetary Fund
The world needs a more effective IMF
Authors:
P. B. Kenen
Publisher:
Council on Foreign Relations, 2007
The International Monetary Fund (IMF) is undertaking a wide-ranging reform of its governance and operations within a framework proposed by its managing director. This report reviews these reform proposals. While expressing reservations about some of the managing director’s proposals, the report argues that the reforms deserve the support of the United States.
The author argues that a larger role for the developing countries – a key objective of the plan to overhaul the Fund – will not impair the influence of the United States. Rather, it will enhance that influence insofar as it increases the effectiveness of the IMF and enhances the Fund’s role in the stabilisation of the world economy and the resolution of disputes like those that have arisen from global imbalances.
The author further argues that it is essential to remember that the chief task of the Fund today is different from its task when it was established. The Bretton Woods Conference designed the IMF to govern a monetary system based on fixed exchange rates. Today, however, the Fund’s primary task is crisis management, and it must be performed in close collaboration with the private sector.
Although there is no looming crisis now, when a crisis emerges the world will look to the Fund to deal with them. The IMF then must be equipped with the financial and human resources required to do that successfully.
The apparent failure of Doha Round of trade negotiations poses a threat to the multilateral system as a whole, and the resulting movement towards regional trading arrangements could well foster regional arrangements in monetary sphere as well. To deal with this threat, the author says, the IMF needs to be strengthened.
The author concludes that both the World and the US need a more effective IMF and the effectiveness of the Fund depends on its perceived legitimacy.
