The past and future of IMF reform: A proposal
Introduction After over sixty years of existence, in the course of which there have been numerous ups and downs, there is probably today less conflict about the role and importance of the IMF than in previous eras. This is largely because the IMF has been almost completely sidelined from many of the major governance issues of the international financial system. Is there any need for an institution such as the IMF? This chapter argues that there may be a case for reviving some part of the original vision of the 1944 Bretton Woods conference; and in particular that the IMF may play a central and useful role as a manager of reserves. The original mandate of the Fund, as laid down in the Bretton Woods Articles of Agreement, was very general: to promote international monetary cooperation, facilitate the growth of world trade, promote exchange rate stability, and to help to create a multilateral system of payments. In order to achieve these objectives, the Fund was supposed to provide short-term balance of payments support to countries in need of additional reserves. The best way of thinking about the IMF’s functions during the early period, the so-called Bretton Woods system (1945-1973), is not so much as an institution, but rather as the embodiment of a system of rules as laid out in the Articles of Agreement. But in the early 1970s the core of the rule-based system, the requirement on member countries to adopt a par value, disappeared. The IMF’s evolution since the 1970s has reflected both the demand for its services in the light of new and perceived market failures and its willingness to provide those services. There has been a fundamental change of environment: the breakdown of the par value system, and the new mobility of capital, and financial deregulation. Capital flows have taken a role that no one expected at the time the IMF was created. The international political system has changed too: there are many new countries, with quite new problems, and the Soviet bloc collapsed both economically and politically. The IMF developed in response to these external challenges. There was an expansion of the scope of policies considered as part of the surveillance exercise. The number and length of duration of stabilization packages increased, but these were successful in only a few cases. In the 1990s, in responses to crises in a
globalized capital market, the IMF engaged in liquidity crisis management. A response to the new politics of the 1990s involved an expansion into non-macroeconomic policy areas, such as criticisms of military spending, corruption, and non-democratic practices. After the Asian crises in 1997 and since, the IMF also discussed areas such as corporate governance and accounting practices that traditionally lay outside its purview.