Thursday, November 5, 2009

IMF Gets New Role Helping The G-20

International Monetary Fund(IMF) Managing Director Dominique Strauss-Kahn is using the IMF’s annual meeting here to campaign for turning the fund into a kind of global central bank with at least $1 trillion for lending developing nations in a crisis.


But a very different reality is taking shape: The IMF is essentially being turned into the staff of the Group of 20, an organization of industrialized and developing nations that doesn’t have a headquarters, staff or rules for membership. With the leaders of the G-20 effectively functioning as the board of directors of the global economy, they need the IMF’s help to carry out their role.

While the IMF’s new assignment was discussed at the G-20 leaders’ summit in Pittsburgh recently, it was more fully fleshed out — and widely endorsed by non-G-20 countries — in Istanbul over the weekend. It was also backed by finance ministers from some of the world’s largest industrialized countries and won a nod from an IMF policy committee that convenes at theannual meeting. And while Mr. Strauss-Kahn would like the IMF to do more, he too has embraced the emerging G-20 role.
Essentially the arrangement is designed to answer problems faced by both the IMF and the G-20. The IMF has long responded to requests from its largest shareholders — such as pressing China over currency issues at the behest of the U.S. But the assignments were often met by grumbling among IMF staff and led developing countries to see the IMF as a tool of U.S. foreign policy.
Significant now are the breadth of the G-20 move and the fact that it is seen as truly multilateral — coming from a larger group of major countries. And it addresses a continuing political failure: The IMF’s biggest shareholders often ignore its advice.
Now the G-20 will handle the politics of the global economy, largely by member countries peer-reviewing each other’s policies — and by pressing countries to stick to their pledges. In the case of China, that means relying less on exports — and by implication letting its currency appreciate — and in the case of the U.S., cutting its long-term debt.
For the G-20, relying on the IMF’s staff also could relieve political pressure, in this case from nations that aren’t members of the club. Egyptian Finance Minister Youssef Boutros-Ghali, who chairs the IMF’s policy committee, said, “What’s the role [at the G-20] of the [IMF's] other 165 nations? That’s two billion people” being left out. He said he thought those members would be satisfied if IMF staff working for the G-20 went through the IMF’s regular channels — such as presenting documents for review to the fund’s executive board, which represents all IMF members.
But Israeli central banker Stanley Fischer, a former IMF deputy managing director, said deeper change is needed. Eventually, he said, the G-20 should become the governing board of the IMF and have the responsibility of representing the IMF’s other members.
The G-20 finance ministers plan to start figuring out the precise procedures during a November meeting in Scotland.
Among tasks already assigned to the IMF is the analysis of plans by G-20 nations to boost growth and monitoring whether nations are carrying them out. Along with the Financial Stability Board, an organization of central bankers and regulators, the IMF will perform similar work on regulatory proposals. The G-20 is also counting on the IMF to develop early warnings of asset bubbles and other major problems.
European Central Bank governing-council member Axel Weber was skeptical of Mr. Strauss-Kahn’s goal of turning the IMF into a global lender of last resort. But Mr. Strauss-Kahn said he had made progress in winning support, pointing to a policy-committee recommendation that the IMF should “review its mandate.”

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