Yesterday, Treasury Department Assistant Secretary Mark Sobel issued a statement addressing the important changes and measures that the International Monetary Fund (IMF) must adopt in order to “retain its relevance and legitimacy to the international system,” within the context of the present financial crisis.
Assistant Secretary Sobel noted that the IMF has responded effectively to the financial crisis by “reprising its role as crisis lender,” in addition to maintaining a strong role in “strengthening the global system.” At the onset of the crisis, the Fund had approximately $200 billion in its reserves and “$50 billion as a backstop in times of need” to make loans to at risk member countries. Since October, the Fund has used its emergency procedures to commit a total of $50 billion through Standby Arrangements to Pakistan, Hungary and Ukraine and has created a Short-Term Liquidity Facility to provide assistance to countries that do not require emergency aid but that are “facing weakness due to tight liquidity conditions.” The Fund has also publicly acknowledged that it has met with officials from Turkey, Belarus, Latvia and Serbia with regard to potential aid packages that may be provided in the future.
Although the Fund is “well positioned to meet prospective demands from its quota resources,” the Fund’s ability to assist countries in need will not be sustainable without assistance from its stronger member countries and the institution of key reforms. Assistant Secretary Sobel highlighted the following areas of reform that should be adopted by the Fund in order to remain a vital international institution:
- Evolve its mission: The Fund should evolve its mission to address issues not only limited to the global financial crisis, including continuing to promote “global financial stability and openness to international investment through its work on sovereign wealth funds,” to address issues related to external stability and exchange rates and to provide “policy advice, technical assistance, and lending as appropriate” to developing countries.
- Reform its governance structure: The Fund’s member votes should reflect “the rise of dynamic emerging markets.” In April, the United States supported a quota reform package that included “a new formula for determining country quotas,” “tripling of ‘basic votes’ which will boost the voice of the poorest countries” and “a targeted quota increase aimed at the most under-represented countries.” The Fund should also reduce the number of seats on its Executive Board (presently 24 members).
- Revisit its core financing model: The Fund is “subject to wide fluctuations and is projected to be on a downward trend, making IMF finances no longer sustainable.” (Last month Japan offered the Fund additional assistance in the form of a $100 billion loan.) Based on the findings of an external report, the Fund has been advised to review its administrative expenditures, conduct a limited sale of its gold reserves the “proceeds of which would be placed in an endowment that would generate annual interest earnings to cover the bulk of the remaining [projected budgetary] gap” and consider a “conservative expansion” of its investments
Assistant Secretary Sobel concluded his statements by emphasizing the importance of support from the U.S. Congress, including Congressional authorization for amendments to the “IMF’s Articles of Agreement to increase basic votes and expand the IMF’s investment mandate.”