IMF Must Play More Active Role In Regulating Global Finances
The International Monetary Fund (IMF) could play a leading role in regulating global finances, say some Group of 20 (G-20) countries, despite doubts in the United States and elsewhere.
Amid intense discussion ahead of a weekend economic summit, the 185-nation IMF is often cited as the best-placed entity to co-ordinate measures aimed at preventing the private-sector excesses largely blamed as the root of the current financial turmoil.
IMF's Managing Director, Dominique Strauss-Kahn, on Sunday, urged the G-20 major advanced and emerging economies to consider the beneficial role the organisation could play at overseeing national regulations.
The G-20 finance chiefs, meeting last weekend in Brazil ahead of a G-20 summit, acknowledged the IMF had "an important role to play in helping to stabilise and strengthen the international financial system," which is the core mandate of the Washington-based institution.
"The IMF must enhance its early-warning capabilities with due regard to systemically important economies," the finance ministers and central bank governors said.
Ahead of the G-20 summit hosted by US President George W. Bush in Washington Friday and Saturday, calls for a "new Bretton Woods", the name of an international conference that gave birth to the IMF in 1944, has multiplied.
France, the current president of the European Union, wants the IMF to point out deficiencies in countries' regulatory frameworks and recommend how to fix them.
"The role the IMF could play in terms of overseeing the activities of industrialised countries remains to be seen," former IMF Chief Economist, Simon Johnson, told AFP.
"But the co-ordinating role doesn't require the IMF to be critical of any country. It just requires to try to help countries co-ordinate on consistent regulatory policies," he added.
The idea of a more hands-on role for the IMF has met opposition.
"You could see countries saying 'if you want the IMF to play such a role, we really need to address the issue of voices, particularly that the Europeans have so many chairs,'" Johnson said.
For example, China has less voting power at the IMF than Belgium and the Netherlands combined.
"It really seems inappropriate for the global role that the IMF is now called upon" to play, he noted.
The United States, the largest and critical stakeholder, with 17 per cent of the votes in an institution that requires 85 per cent for major reforms, is among those that object to IMF intervention in its internal affairs.
"If the role of a regulator means that the IMF is going to tell the rich countries whether they're doing a good job or not, that does not seem to me very realistic," said Daniel Bradlow, Professor of International Law at American University in Washington.
The role of crisis prevention is what Adam Lerrick, a Researcher at the American Enterprise Institute, a Washington-based think tank,says is best-suited to the IMF and could help smooth market volatility.
"The IMF has an undervalued function, which it has played for a number of years, which is basically setting information and disclosure standards for governments and financial institutions," Lerrick said.
"The markets hate surprises. The IMF can help them override crises by increasing the amount of information available. That would do more to improve the stability of the capitals market than any lending or regulatory function they could propose."