IMF Reform, the Bank of England and Others
The issue of the reform of the IMF is now on the international agenda. What are the options and how can the public understand the issues and help inform the solutions?
The issue of reform of the IMF is unavoidable. It is not only on the agenda of participating governments but it has been on the Fund’s own agenda since the publication, in September of last year, of the Medium-Term Strategy. Now the concern is the extent of the reforms. The British Prime Minister called for reform of the international institutions and framed the problem in terms of trying to solve the problems of the 21st century with mid-20th century institutions. In this he was following the line taken by Mervyn King (Governor of the Bank of England) who had earlier in the year set out, in India as it happens, his views on the need for, and on the extent of, the reforms. In going back to basics, perhaps paradoxically, King calls on some of the ideas of John Maynard Keynes who was in at the beginning, whilst rethinking contemporary contexts and needs.
The Managing Director of the IMF reported in April 2006 that the discussion that followed the publication of the Medium-Term Strategy ranged from the ‘evolutionary to the revolutionary’. The Fund sees the issue broadly along the lines of adjusting relationships with its members and with emerging markets in particular whilst maintaining a long list of responsibilities. The Governor of the Bank of England talks of a lack of clarity with respect to the Fund’s present role whereas an independent commentator, Rainer Falk, also argues for a fundamental reform and, especially for radical democratization of the institution. Falk sees the "European response' i.e. the EU response, as pathetic. Abolition of both the Fund and the World Bank do not seem to be part of the possibilities under consideration though King referred to Keynes’ view that if the IMF and the World Bank were to become politicized then the best thing would be for the organizations ‘to fall into an eternal slumber’.
King posed a series of questions, contextualized within the current conditions of international capital flows, designed to take the issue back to basic concerns. One issue is whether or not capital markets have replaced the need for the Fund. Interactions and the international transmission of shocks are significant issues and as countries are no longer ‘atomistic’ there can be incompatibilities. King would locate the Fund’s role in the context of the need for an objective analysis of ‘spill-over effects’ and in the need to discuss risks. The basis for the Fund as a risk analysis/risk averting forum would be the analysis of country balance sheets and the promotion of transparency about monetary policy. This would not be a Central Bank ('lender-of -last resort') to the world economy but an altogether more modest though nonetheless essential role.
On this basis, there needs to be ‘mandate reform’ (at its core ‘global economic and monetary stability’) followed by ‘management reform’ (the new mandate to be ‘delivered, by ‘the management of the IMF’ rather than through the Board). Any international institution in a global world must face up to the problem of ‘legitimacy’ (Falk’s issue is that of radical democratization). King sees the need to ensure that ‘all regions of the world’ are ‘appropriately represented’ and is clear that China and India have a part to play. No mention is made of a coordinated European approach, a suggested by Falk. King calls for answers to the questions that he posed in February 2006. The views that he put forward would limit the responsibilities of the IMF, particularly with respect to economic development. His list is certainly different from the long and detailed list that the Fund proposes for itself. King wants to avoid the further evolution of the IMF through ‘bland communiqués’ and ‘meaningless statements’. This would place him more on the 'revolutionary' than on the 'evoluitonary' part of the spectrum of opinion as described by the Fund's Manager.
Choices with respect to the institutions for running the global economy are significant choices. It is part of my job to raise the quality of public discussion about international issues. There must be others with similar roles and concerns. How can such choices be transmitted to ordinary people, outside the corridors of power, or in King’s terms outside the ‘windowless rooms’ of international meetings, in ways that help ensure that the choices made are informed by democratic rather than simply technical considerations? How can wider public discussion ensure that ‘bland communiqués' and 'meaningless statements' do not win out?