The Asian Crisis and the Changing Role of the IMF

• Author: Stanley Fischer
• Position: First Deputy Managing Director of the International Monetary Fund

Since it began operations in 1946, the IMF has steadily evolved in response to changes in the world economy. What steps is it taking to meet the new challenges posed by the Asian crisis?

THE ASIAN CRISIS has focused unprecedented attention on the IMF. While the ensuing debate is a healthy part of the process by which the institution is held accountable, the spotlight on the IMF has also revealed a number of misconceptions about its evolving role in the international monetary system. In particular, it is often stated that the IMF was established to manage the system of fixed exchange rates set up at the end of World War II, and that since the breakdown of that system in 1973, the institution has been searching for a rationale.

It is true, of course, that the IMF has evolved and adapted since it began operating in 1946. Nonetheless, its current activities are closely consistent with its initial purposes-testimony to the foresight of the founders of the international economic system set up after World War II, a system that has helped produce more growth and more prosperity for more people than in any previous fifty-year period (see box).

Purposes of the IMF

The goal of the representatives of the 44 countries who met at the United Nations Monetary and Financial Conferencein Bretton Woods, New Hampshire in 1944 was to rebuild the international economic system, whose collapse had contributed to the Great Depression and the outbreak of war. To this end they proposed setting up the International Monetary Fund, the World Bank, and what much later became the World Trade Organization.

The primary purposes of the IMF, set out in Article I of its Articles of Agreement, have remained essentially unchanged over the past fifty years:

* To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.

* To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income....

* To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

* To assist in the establishment of a multilateral system of payments in respect of current transactions...and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

* To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with the opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

* In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

International cooperation

The IMF, with its 182 member countries, is the premier forum for international economic cooperation and consultation. Issues relating to the organization and functioning of the international system are generally discussed and, when decisions are needed, decided on in the IMF-by the Executive Board, the Interim Committee of the IMF's Board of Governors, and by the Board of Governors.

Almost every major international economic issue or problem of recent years has been discussed in the IMF and usually acted upon (often together with other institutions, especially our Bretton Woods nonidentical twin, the World Bank): the Mexican and Asian crises; technical and financial assistance to the economies in transition, including Russia; the debt problems of the poorest countries (in close cooperation with the World Bank); the attempt to improve international banking standards; economic assistance to countries emerging from chaos in the aftermath of wars and natural disasters; the ongoing effort, initiated following the Mexican crisis, to improve the quality and public provision of data; the unfortunately long-running problems of the Japanese economy this decade; the activities of hedge funds and their role in the Asian crisis. The list goes on and will go on.

Much of what the IMF does consists of surveillance-reporting by the staff to the...