IMF: Stepping Up

The IMF has been stepping up to help solve the global financial crisis.  Only a few years ago, it was experiencing an identity crisis and was under fire from many corners.  This post addresses the IMF’s changing role and shows a chart detailing its planned redistribution of voting rights that will ensure greater representation of such rising powers as China, India, Korea, Brazil and Mexico.

In the G-20 communiqué of March 14, the IMF committed to implementing the changes in voting rights agreed in April 2008 and to reassess again these rights by 2011.   Likewise, the IMF has provided financing to beleaguered emerging markets, in addition to its research and policy prescriptions.

While the much-maligned IMF has made a few tactical mistakes over the years (including at times calling for fiscal austerity at the wrong times), in my view, it has been engaged in saving the world and helping the planet’s most impoverished people access the global economy. I am an unabashed booster of the IMF, having followed the organization’s work closely for more than a decade as a country risk analyst.  Since its inception in 1944, the IMF has gone from providing balance of payments support to industrialized countries trying to maintain fixed exchange rates, to providing financing attached to economic policy conditions to developing countries, to functioning as a global economic think tank and economic data collection and monitoring authority.    

As any bureaucracy, the IMF seeks to find a useful role for itself in changing circumstances.  A few years ago, when most major emerging market economies were accessing the international capital markets on their own, the IMF and its observers wondered “Whither the IMF?”  What would its future role be in a world of flexible exchange rates (with a reduced need for balance of payments support) and financially-sound emerging markets?  Should it become an official international rating agency?  Should it be a financial crisis early warning authority?  Should it offer policy prescriptions to the advanced economies, given that global imbalances were a trigger for the current crisis?  Was it becoming an anachronism, given the voting power skewed in favor of European countries?

Now, with the current crisis, it has a central role again.  Those emerging market countries with large external imbalances (many in Eastern Europe), glossed over by many analysts during the recent boom, have received IMF loans.  Hungary, Ukraine, Belarus, Latvia, Serbia, Armenia and Iceland all have received IMF financing of late.   With capital flows from advanced to emerging countries drying up, the international financial institutions, led by the IMF, are stepping up.  The crisis points up the need for augmenting the resources of the IMF and the other IFIs.

Likewise, the IMF should be applauded for moving ahead with its plan to redistribute voting rights toward emerging economies that have seen their relative size increase dramatically in recent years.  In April 2008, the changes in voting rights shown in the box below were agreed.  Likewise in the G-20 communiqué of March 14, the IMF was encouraged to stay on schedule to review voting rights changes needed to reflect economic realities by January 2011. 

 

 

 

IMF:  Changes in Voting Shares

Country

Percentage point change from pre-Singapore to post second round
(Share)

Post second round voting share
(In percent)

Top 10: Positive Change from
pre-Singapore

China

0.88

3.81

Korea

0.61

1.36

India

0.42

2.34

Brazil

0.31

1.72

Mexico

0.27

1.47

Spain

0.22

1.63

Singapore

0.18

0.59

Turkey

0.15

0.61

Ireland

0.13

0.53

Japan

0.12

6.23

Top 10: Negative Change from
pre-Singapore

United Kingdom

-0.64

4.29

France

-0.64

4.29

Saudi Arabia

-0.41

2.80

Canada

-0.37

2.56

Russia

-0.35

2.39

Netherlands

-0.30

2.08

United States

-0.29

16.73

Belgium

-0.26

1.86

Switzerland

-0.19

1.40

Australia

-0.18

1.31

Source:  IMF Finance Dept., from March 2008 proposal.

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