CFR: save the IMF!
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= U.S. Should Support Strong IMF, Urges New Report
Developing Countries Need More Voting Power The International Monetary Fund’s (IMF) legitimacy and status must be = strengthened now so that it can be an effective manager when the next = global crisis breaks out, urges a new Council Special Report. = “Economic and financial conditions can change with alarming speed, = and crises are bound to recur,” warns report author and Council = Senior Fellow Peter Kenen, a renowned economist. “It would be far = harder to reform the Fund in the midst of a new crisis than to do so = now. It is easier to modernize a fire brigade when there are few = fires than in the midst of a major conflagration.” Founded after World War II, the IMF’s original purpose was to govern = a monetary system based on fixed exchange rates among mostly = industrialized countries. Today, its primary function is crisis = management and the majority of members are developing countries, = ranging from large, emerging markets to small, impoverished states. = And yet industrial countries still dominate the decision-making = process even though they have not borrowed from the IMF in more than = twenty years. This development has been a significant catalyst for = calls for reform. “An institution will lack legitimacy if its members believe that it = is dominated by a handful of large countries mindful of only their = own immediate interests=97and that is the principal risk facing the = Fund,” says the report, Reform of the International Monetary Fund. = Strengthening the IMF depends largely on the adoption of a set of = reforms proposed by the IMF’s own managing director, Kenen writes, = chief among these: reforming the quota system used to determine = members’ voting power. “The proposed reform is inspired in large part = by the emergence of large middle-income developing countries such as = China and India, which now play a major role in the world economy but = which (like the low-income developing countries) are underrepresented = in the Fund.” Kenen notes that countries with a large number of votes, like the = United States, could feel threatened by the proposed reform, but = argues that they should not. “A larger role for the developing = countries=97a key objective of the plan to overhaul the Fund=97will not = impair the influence of the United States. Rather, it will enhance = that influence insofar as it increases the effectiveness of the IMF = and enhances the Fund’s role in the stabilization of the world = economy and the resolution of disputes like those that have arisen = from global imbalances.” The report, produced by the Maurice R. Greenberg Center for = Geoeconomic Studies, provides a history of the IMF’s structure and = practices, and offers an assessment of additional proposed reforms, = endorsing some, criticizing others, and urging a more aggressive role = in confronting global imbalances. Many countries remain at risk for financial crises, and a strong IMF = that can take the lead in responding is in the interest of the U.S., = concludes the report. With well-managed reform, the IMF could play a = useful role in resolving global economic imbalances.=