The IMF has issued a paper on what it should do to promote global stability and how its membership might best support that process. The aim is not to put forward concrete proposals, but to float ideas which will stimulate debate.
The IMF is rethinking its role in the post-crisis world to ensure that it is doing the right job for its 186 member countries.
At the 2009 IMF-World Bank annual meetings in Istanbul, the IMF’s membership called on the Fund to review its mandate to ensure that it covers “the full range of macro-economic and financial sector policies that bear on global stability.” The IMF’s policy steering committee asked the IMF to report back by the time of the 2010 annual meetings.
As a first step toward a formal proposal, the IMF has issued a paper, the first in a series of reflections on the Fund’s mandate, on what it should do to promote global stability and how its membership might best support that process. The aim of the paper is not to put forward concrete proposals, but to float ideas which will stimulate debate. The IMF’s Executive Board discussed the paper on February 22 2010.
In coming months, the Board will discuss other papers focussing on the Fund’s role in the key areas of its mandate: surveillance, financing, and the stability of the international monetary system. The IMF is seeking extensive feedback from governments, academics, and civil society before issuing its final report to the International Monetary and Financial Committee in October 2010.
Why a broader mandate is needed
The basic question is whether the Fund is adequately equipped to be an effective guardian of global macro-economic and financial stability, according to Reza Moghadam, Director of the IMF’s Strategy, Policy, and Review Department. To answer this question, the IMF is looking at every aspect of its work, including how it conducts economic and financial surveillance, how it provides financing to its member countries, how it conducts its oversight of the international monetary system, and how it works with other international organizations.
The paper points to three main challenges:
• Crisis prevention. The IMF must improve its ability to assess systemic risks. National regulatory oversight after the crisis is shifting from assessing risk in individual institutions to assessing risk to the entire financial system. The IMF’s surveillance covers both economic policies in individual member countries, and developments relating to the global economy as a whole. But in practice, the bulk of the Fund’s efforts have been at country level. In future, more attention should be given to the linkages and spillovers between economies. The coverage of financial sector policies is particularly important if the Fund is to be ahead of the curve in crises.
• Crisis response. In future, the IMF’s crisis lending has to be of a speed, coverage, and size far beyond previous assumptions. The crisis has highlighted the risk of sudden runs on liquidity in advanced, emerging, and developing economies alike. The Fund can help by offering more flexible insurance facilities to build on recent reforms and by expanding its lending capacity. Far-reaching reforms were introduced during the crisis, but more is needed.
• Stability of reserves. The crisis has cast a spotlight on the tension between the high demand for global liquidity by emerging market economies and the dependence on the stability of just a few suppliers of such liquidity. If the IMF’s ability to prevent and respond to crises is strengthened, this could help alleviate countries’ perceived need to accumulate vast reserves. It may also make sense for the Fund to back the use of a global reserve asset and other initiatives that could reduce risk in the international monetary system.
© International Monetary Fund
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