Captain Rato and the Titanic: the growing irrelevance of the International Monetary Fund.

• Author: Lachman, Desmond

On evaluating the International Monetary Fund's management of today's highly imbalanced global economy, one cannot help but be reminded of the apocryphal story about the inquest into the sinking of the Titanic. When asked why he did not steer the ship away from the iceberg to avoid a collision, the captain supposedly asked, "What iceberg?" Reading today's soothing speeches on the state of the global economy by Mr. Rato, the IMF's managing director, one has to wonder whether he will fare any better than did the Titanic's captain when some future inquest looks into how today's global imbalances unwound.

The current passivity of the IMF in providing any real leadership to solve today's unprecedented global payment imbalances has prompted Barry Eichengreen, the renowned economic historian, to extend the maritime metaphor as it applies to the IME He aptly describes today's IMF as a rudderless ship floating on a sea of global liquidity. For that reason, he correctly chastises the IMF for failing to discharge its stewardship of the international monetary system and he raises the most pertinent of questions when he asks what will happen to the global payment system when today's conditions of excess liquidity come to their inevitable end.

Questions about the relevance of the IMF are hardly new. Indeed, the total lack of involvement of the IMF in the ERM exchange rate crisis of the early 1990s has long since prompted the question as to whether we really do need an IMF for the industrialized countries. After all, the industrialized countries have not borrowed from the IMF since the early 1980s. Further, they are highly unlikely to do so in the future since they almost universally regard the IMF as a lending agency exclusively for the troubled emerging market economies with which they would hardly want to be compared.

More surprising, perhaps, is that in the emerging market economies themselves serious questions are now being asked about the IMF's relevance. In reaction to their bitter experience with 1MF borrowing during the 1997 Asian crisis as well as to their under-representation on the IMF's governing board, most Asian countries are determined never to have to go back to the IMF to borrow money. To that end, they have built up an enormous cushion of international reserves and they are even toying with the idea of setting up their own Asian Monetary Fund to handle any future balance of payments crises that they might experience.

Even in Latin...