A highly distinguished panel on the future of IMF organized by the Per Jacobsson Foundation during the Annual Meetings didn't so much debate the role of the IMF as wring its collective hands over the IMF's limitations in preventing the global financial meltdown and its lack of a role in organizing a response -- even as the G7 finance ministers held emergency meetings the same weekend elsewhere in Washington. (Full disclosure: I am a member of the Per Jacobsson Foundation Board.)
Two points were notable. First, the participants were all clear that the IMF has been and is powerless to pressure its big rich members. Second, they all hinted at the underlying "governance" problem -- though none dared to be as clear as Sebastian Mallaby "that serious IMF reform needs to begin with the modernization of its Board…..that rising powers such as China and India deserve more say . . . declining powers need to give up some influence -- and that includes France and Britain."
On the first point, all panel members voiced the view that the IMF had lost its way. The failed attempt at "multilateral surveillance" (designed to get China and the U.S. to do something about the global imbalance their respective surplus and deficit were causing) showed the IMF to be "toothless and biased" said Raghuram Rajan (biased in favor of the U.S. he meant). "The Fund has to have candor even with the largest countries" (it doesn't is what he meant).
Stanley Fischer noted that the United States refused to submit itself to the mild discipline of an IMF-staff Financial Sector Assessment Program or FSAP and that the G-7 prefers to handle its problems "in smaller clubs" such as the Financial Stability Forum (with its small but effective secretariat at the Bank for International Settlements in Basel, Switzerland) to avoid having to "listen to the IMF."
Jean Pisani-Ferry nicely summed up the situation regarding multilateral surveillance: "The parties were unwilling and the Fund was reluctant to bell the cat."
The inability of the IMF to discipline the United States or China meant the U.S. was enabled by easy money to be the global consumer of last resort -- or forced to be that, as Martin Wolf has argued over the last few years, including in his FT column last June. Martin has a point: to some extent, U.S. regulatory failures were induced by the low interest rates that were in turn made possible by China's savings glut. Europe's problems suggest easy money mattered there, too -- since whatever tougher regulatory standard they had didn't protect them from U.S. contamination.
Bottom line on the IMF's relationship with rich and powerful members: It is impossible for the IMF to discipline the rich, who hold the purse strings -- or China which now holds one of the world's fat purses. Fischer noted that other organizations have not solved this problem, "certainly not the United Nations" -- an invidious comparison indeed! Lacking financial leverage with rich members, the IMF should concentrate on being an honest broker, providing fully transparent independent assessments and publishing them regularly and with vigor. Hmm: the IMF as independent think tank!?
On the second, related, point, the governance of the IMF itself, panel members spoke elliptically. Rajan: "That brings us to the fundamental problem of governance." Fischer: if the IMF were being created today, there would be "different shares of votes and more financing." Manuel: "Ownership at a time like this is paramount."
That raises the question of what Gordon Brown and Nicolas Sarkozy said to President Bush at Camp David this past weekend, where they presumably wanted to pursue Brown's idea of a Bretton Woods II. Ted Truman argues that this is not the time to be rewriting fire department rules -- while the fire is raging. Sebastian Mallaby argues that global coordination is not the priority, since most financial system reforms have to be done at the national level. Is it possible that Brown and Sarkozy were not discussing the technical details of global coordination on a derivatives clearinghouse and Tarp vs. bank recaps, but actually suggesting to Bush that in his final days he could propose a dramatic reform of the governance of the IMF -- along with the World Bank? (Robert Zoellick and the World Bank Board are inching toward some changes there.) Wishful thinking, perhaps, but it would make for a more lasting legacy!