WASHINGTON, Sept 19: The International Monetary Fund said in a major review of its activities on Monday that it has been pulled too far from its six-decade-old mandate of policing the global financial system.
A raft of hefty bailouts of countries suffering liquidity crises in the 1990s spawned a host of follow-up work that took the IMF onto uncharted territory, as did the September 11 attacks of 2001.
The interim review, which was commissioned by IMF chief Rodrigo Rato after he took office last year, said the Fund needs to refocus its energies on keeping tabs on emerging dangers in the global financial system.
“The role of the IMF is to advise and support countries in achieving macroeconomic and financial stability,” Rato told reporters.
“Of course to do that in 2005 is not the same as to do it in 1946, and we identify many reasons why that is different: one of them clearly is globalization,” he said.
The report acknowledged disquiet in parts of the world about the IMF’s legitimacy, especially in Asia, where Indonesia, South Korea and Thailand received huge bailouts after financial crisis hit the region in 1997.
The IMF has become too embroiled in anti-poverty work that has traditionally been the domain of its sister organization, the World Bank, the review also said.
The document will provide food for thought for world financial leaders as they prepare to gather here this weekend for the IMF-World Bank annual meetings.
Both institutions were set up after World War II to establish some much-needed stability and direction to international financial and economic development questions.
The IMF now counts 184 member countries but its decision-making board remains dominated by its biggest shareholders: the United States, Japan and European countries.
The organization has always been led by a European, while the World Bank chief has traditionally been an American. Debate about whether that arrangement remains tenable has flared in recent years, not least before Rato took office.
The report said Fund voting procedures need to be reviewed to give more weight to developing countries, particularly in Asia and Africa, but Rato said debate on how to achieve that was still at an early stage.
“Some movement is needed because ... in some cases, we are risking losing legitimacy and that is a strategic issue for an institution like this one,” he said.
While not the final word on the strategic review, the paper prepared by senior IMF staffers highlighted yawning imbalances in global finances as one of the core activities to which the body must return its attention.
The United States is sinking ever-deeper into deficit while Asian countries such as China rack up massive surpluses, in part according to the IMF because of their inflexible currency regimes.
The report said “there is a sense that the challenges of the past decade have pulled the Fund in too many new directions”.
The 1990s crises in Asia, Russia and Mexico spawned major initiatives on data transparency and financial market standards and codes, while the response to 9/11 pushed the Fund into fighting terrorism finances and money laundering.
The report said the IMF runs the risk of not being “fully prepared to meet the great macroeconomic challenges that lie ahead”.
These include tackling “unprecedented global payments imbalances”, responding to national crises caused by investor panic and helping poorer IMF members to integrate into the world economy.
The review further noted that the demarcation of the roles of the IMF and World Bank has “grown fuzzy”. Each organisation needs to delineate its priorities more clearly, it said.—AFP
