The Decline of the IMF: Is It Reversible? Should It Be Reversed?(Global Insights) (International Monetary Fund)

The venue had been chosen thoughtfully. In a speech delivered in New Delhi, capital of an emerging Asian economic power, Mervyn King, governor of the Bank of England, called for a radical reform of the International Monetary Fund (IMF). In unusually stark terms, King cautioned against letting the IMF slip into obscurity. The institution needed to be modernized and its tasks reconsidered, he argued in February 2006. (1) Since then, several other central bankers, politicians, and academics have contributed to the debate on the future of the Fund. This discussion on the future of the IMF partly reflects the relative calmness in financial markets. The Fund did not have to manage any major financial crisis in recent years, in contrast to the days of the Asian crisis in 1997 or the collapse of the Argentine economy in 2002. But the debate also reflects a deeper concern over the international financial architecture for the twenty-first century. Two unresolved issues cloud the future of the IMF. First, the governance structures of the Fund itself ought to be changed. Today, there is an unsustainable asymmetry: OECD countries shape the IMF's policies, which affect primarily developing countries and newly industrialized economies. Second, the IMF does not provide a convincing safety net for financial crises. If it does not modernize its lending policies, alternative structures of financial governance will continue to be developed. In the absence of a credible institution of global financial governance--providing both crisis prevention and management--governments in countries that have experienced financial crises are developing their own measures, both unilaterally and at the regional level.