An outsider's take on IMF reform

• Pages: 317-323

Page 317

In Ted Truman's view, the IMF has lost sight of where it wants to go. The Senior Fellow at the Institute for International Economics argues that a new consensus must be forged among shareholders on matters ranging from governance reform to capital account liberalization. Truman's prescriptions for the Fund also include rolling back its involvement with poor countries, giving more forceful advice on exchange rates, and encouraging IMF Executive Directors to publish their statements on the IMF's Board.

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IMF is facing an identity crisis

How the IMF should undertake reform is currently the subject of intense debate, with experts like Ted Truman-Senior Fellow at the Institute for International Economics-taking a strong stance on the topic. As a former Assistant Secretary of the U.S. Treasury for International Affairs and Director of the Division of International Finance of the Federal Reserve Board, Truman is also wellplaced to comment on the IMF's largest shareholder-the United States-and its policies toward the IMF. He spoke with Camilla Andersen of the IMF Survey about the challenges facing the IMF today.

IMF SURVEY: You have said the IMF is facing an identity crisis.Why is that?

TRUMAN: The IMF has lost sight of where it wants to go. There is a lack of consensus among its shareholders about what its mission should be, who its main clients are, and what the benefits of membership should be.

This loss of direction can be traced back to the mid-1990s.

Before then, there was broad satisfaction with what the IMF was doing, including with its role in helping former communist countries transition from planned to market economies. But when a crisis hit Mexico in 1994, a big split occurred over how to address it.

The IMF stepped in and a number of countries, especially in Europe, felt that that was a mistake. The IMF did the right thing at the time. But the Fund-and the United States, which took a lead role in coordinating the response to the crisis-did a poor job of convincing other countries that it was on the right track. And when the Asian crisis hit in 1997, the divisions were still there.

Further complicating matters, the industrial countries no longer need the IMF and have thus tended to ignore its advice in recent years. As a result, the IMF's role has been reduced. It never has had a great deal of influence, but what little influence it had-including its ability to mobilize global public opinion-has been waning. The most recent expression of this declining relevance is the IMF's inability to influence policies affecting current global imbalances, including the U.S. budget deficit.

IMF SURVEY: Pressure has been mounting on the IMF to become more forceful in its monitoring of exchange rates, especially with respect to China. But isn't there something to be said for the "quiet diplomacy" advocated by the IMF's Managing Director?

TRUMAN: My view is "yes, but . . ." Clearly there is a role for quiet diplomacy, but there is also a role for initiative and plain...