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# On What Terms Is the IMF Worth Funding?

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In the first decade of the 21st century the International Monetary Fund (IMF) faced crises of legitimacy, relevance, and budgetary finance. It now confronts what likely will be the worst global recession since World War II, potentially huge demands for its financial assistance with limited resources, and calls for it to play a more central role in the international financial and regulatory systems. At the same time, the incoming Barack Obama administration must decide what to do about the modest package of IMF reforms that was completed in the spring of 2008. The package requires US congressional approval to go into effect. This paper reviews the recent, slow progress on IMF reform and makes recommendations to the Obama administration against the background of that record, the emerging global recession, and continuing financial turmoil. I recommend that the IMF package be reopened to include a doubling of IMF quotas and an amendment that will permit the Fund to swap special drawing rights (SDR) with major central banks to finance its short-term lending facility. I also recommend a special allocation of 50 billion SDR. If these proposals are turned down by the G- 20 at its meeting in April 2009, I reluctantly recommend that the Obama administration seek congressional approval of the IMF package as it now stands because a failure to do so would seriously undermine the Fund as a central multilateral institution.
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Working Paper Series
W P 0 8 - 1 1

D E C E M B E R 2 0 0 8
On What Terms Is the IMF Worth Funding?
Edwin M. Truman
Abstract
In the first decade of the 21st century the International Monetary Fund (IMF) faced crises of legitimacy,
relevance, and budgetary finance. It now confronts what likely will be the worst global recession since World
War II, potentially huge demands for its financial assistance with limited resources, and calls for it to play a
more central role in the international financial and regulatory systems. At the same time, the incoming Barack
Obama administration must decide what to do about the modest package of IMF reforms that was completed
in the spring of 2008. The package requires US congressional approval to go into effect. This paper reviews
the recent, slow progress on IMF reform and makes recommendations to the Obama administration against
the background of that record, the emerging global recession, and continuing financial turmoil. I recommend
that the IMF package be reopened to include a doubling of IMF quotas and an amendment that will permit
the Fund to swap special drawing rights (SDR) with major central banks to finance its short-term lending
facility. I also recommend a special allocation of 50 billion SDR. If these proposals are turned down by the G-
20 at its meeting in April 2009, I reluctantly recommend that the Obama administration seek congressional
approval of the IMF package as it now stands because a failure to do so would seriously undermine the Fund
as a central multilateral institution.
Keywords: International Monetary Fund, current account adjustment, exchange rates, financial turbulence,
global recession, financial supervision and regulation
JEL Codes: F02, F32, F33, F42
Edwin M. Truman, senior fel ow since 2001, was Assistant Secretary of the Treasury for International Affairs (1998–
2000). He directed the Division of International Finance of the Board of Governors of the Federal Reserve System (1977–
98). He also served as one of three economists on the staff of the Federal Open Market Committee (1983–98) and as a
member of numerous international working groups on international economic and financial issues. He is author, coauthor,
or editor of International Economic Policy Coordination Revisited (forthcoming), Sovereign Wealth Funds and the International
Financial System (forthcoming), The Growth and Diversification of International Reserves: Implications for the International
Monetary System (forthcoming), A Strategy for IMF Reform (2006), Reforming the IMF for the 21st Century (2006), Chasing
Dirty Money: The Fight Against Money Laundering (2004), and Inflation Targeting in the World Economy (2003).
Author’s note: This paper was prepared for a conference titled “The Global Monetary and Financial System and its
Governance” held in Tokyo, Japan on November 11–12, 2008. I gratefully acknowledge the Tokyo Club Foundation
for Global Studies for its financial support. I also thank Lewis Alexander, C. Fred Bergsten, Ralph Bryant, Benjamin J.
Cohen, Scott Morris, and John Williamson for very helpful comments on the initial draft. None of them is responsible
for the views expressed.
1750 Massachusetts Avenue, NW Washington, DC 20036-1903

Tel: (202) 328-9000 Fax: (202) 659-3225 www.petersoninstitute.org

Since the middle of this decade, the International Monetary Fund (IMF) has faced triple crises of
legitimacy, relevance, and budgetary finance. IMF members endeavored to address these crises against the
background of sharply diminished demand for IMF financial assistance as a consequence of a sustained
period of global expansion despite, or because of, rising global imbalances. During the first 12 months of
the global turbulence that started in August 2007, many observers noted disapprovingly that the Fund
was on the sidelines. Some noted more critically that it was likely to remain there either by the intent of
its members or by the design of the institution. Since September 2008, the Fund has been thrust back
into the lending business amid some calls that it should also play a more central role in the supervision
and regulation of the global financial system.
In this paper, I take stock of these developments and answer the question that will face the new
Barack Obama administration: On what terms is the IMF worth funding? My answer to this question is
not as straightforward as it would have been six months ago.
In the spring of 2008, after several years of intense discussion and a number of other policy changes
at the IMF, an international y agreed package of measures was approved and submitted to members for
their ratification or acceptance. For the United States, the package involves (1) acceptance of an increase
of about \$7.5 bil ion (SDR 4.97 bil ion at \$1.50 per SDR) in the US quota in the Fund; (2) approval of
an amendment to the IMF Articles of Agreement and the US Bretton Woods Agreements Act that will
increase the basic votes of each member of the Fund, fix permanently the share of basic votes in total votes,
and provide for an extra alternate executive director for any constituency group of countries in the Fund
with at least 19 members; (3) approval of a second amendment to the IMF Articles that wil expand the
powers of the IMF to invest certain of its financial resources; and (4) authorization for the US secretary of
the Treasury to vote to approve the sale of a portion (12.97 mil ion ounces, or 12.5 percent) of the IMF’s
103.4 mil ion ounces of gold, which is worth about \$80 bil ion (at a market price of \$800 an ounce).1
Action by the US Congress is needed for any of these measures to go into effect because they require
approval by 85 percent of the weighted votes of the members of the IMF, and the current US voting
share in the Fund is 16.77 percent. The George W. Bush administration submitted this package to the
Congress on November 12, 2008 in a letter from Treasury General Counsel Robert Hoyt to House
Speaker Nancy Pelosi and another identical letter to the President of the Senate Richard Cheney. The
governments of the other members of the Fund, including, importantly, European members of the Fund
with more than 30 percent of the voting power, also must act on the first three elements of the package
1. The first two elements of the package are linked in that the first cannot go into effect without the second. As a practical
matter, the last two elements are also linked in that the expanded investment powers for the IMF will not be of much use
if the IMF does not have the authority to invest the proceeds from the gold sales. Furthermore, although the US Congress
could act separately on the four elements, or separately on the two pairs of elements, the four elements most likely would
be voted upon as a package.


before they can become effective, but in most cases such actions are more routine than in the United
States.2
Six months ago, I would have written that the package of measures requiring congressional action
should be endorsed by the incoming administration and resubmitted to the Congress and that the
Congress should vote its approval. Although the package and other changes at the Fund over the past
several years fall short of what I would have liked, rejecting them would pose an existential question.
receive from other countries, if the United States were to reject the package or fail to ratify it, this country
would be turning its back on the Fund as the preferred locus of multilateral approaches to the solution of
common problems. Without US support, the IMF would not disappear, but its role as a major institution
of global governance promoting economic growth and financial stability would be further reduced. One
qualification to this earlier answer remains relevant: I assumed that negative US congressional opinion
on China’s exchange rate policies would be mollified by further substantial appreciation of the renminbi
(RMB) against the dollar, as well as other currencies, by the time any final votes were taken.
Writing in late November 2008, I would further qualify my answer. My principal recommendation
to the incoming Obama administration is to explore with other countries reopening the package on an
expedited basis. The new administration should seek to include in the expanded package: (1) a further
change in the formula used to guide the allocation of quotas in the Fund in the direction of giving
less weight to the traditional industrial countries, (2) a doubling of IMF quotas with the allocation of
increases based on the revised quota formula and a parallel doubling of the amounts that the IMF can
borrow from members under the General Arrangements to Borrow (GAB) and the New Arrangements
to Borrow (NAB), (3) a consequent further adjustment of voting shares in the Fund of at least five
percentage points away from the traditional industrial countries, and (4) an allocation of SDR 50 billion
(about \$75 billion).3 I also recommend (5) that the Obama administration seek authorization for the
Federal Reserve to swap unlimited amounts of US dollars for SDR issued by the Fund for up to two
years and an amendment of the IMF Articles of Agreement to allow the Fund to swap SDR for the
national currencies of the United States and other countries issuing currencies that are heavily used in
international finance. These national currencies would be used to finance a short-term liquidity facility
in the IMF to assist member countries in supporting the international operations of financial institutions
chartered within their jurisdictions. The aim should be completion of congressional action on the entire
package by the end of 2010.
2. The two amendments of the Articles of Agreement also require approval by three-fifths of the members of the IMF
before they can go in to effect.
3. Only item 2 requires congressional action. The US quota in the IMF is currently SDR 37.1 billion (about \$55.7 billion)
and its GAB/NAB commitment is SDR 6,640 million (about \$10 billion).


This paper, first, reviews progress on IMF reform over the past several years. The second section
examines the role of the IMF in the unfolding global financial crisis and how that should affect the answer
to the question posed in the title of this paper. A final section returns to the title question.
My review of IMF reform loosely follows the recommendations in my strategy for IMF reform
(Truman 2006b). That strategy was based on a conference held at the Peterson Institute for International
Economics in September 2005 (Truman 2006c). At that time, there were other IMF reform proposals,
including one by a previous IMF managing director, Michel Camdessus (2005), and another by the then-
current managing director, Rodrigo de Rato (IMF 2005a). There have been others since, for example,
by the current IMF managing director Dominique Strauss-Kahn (2008) and others calling for broader
reforms of the international architecture such as World Bank president Robert Zoellick (2008) and
British Prime Minister Gordon Brown in the Washington Post of October 17.4 However, my agenda
provides a framework to discuss progress on reform issues during the past three years.
Before proceeding to the review of recent IMF reform accomplishments, it is useful to remind
ourselves what we mean when we refer to the IMF. The Fund, first and foremost, consists of its member
countries as represented on the 24-member executive board or on the “advisory” International Monetary
and Financial Committee (IMFC). In particular, if the members cannot reach consensus on IMF reform
or on the role the Fund should play in the international economy and financial system, the Fund as a
functioning institution will be severely hampered. Even without consensus, the Fund is not completely
stuck because the management of the institution, in the person of the managing director, can propose,
prod, embarrass, and otherwise try to lead the members of the organization to endorse proposals that
promote the IMF’s objectives in the world economy and financial system. In doing so, the managing
director can be substantially helped, or hindered, by the imagination and technical quality of the work of
the IMF staff.
The STATe of PlAy on IMf RefoRM
In 2005, I identified six components of an IMF reform agenda: (1) substantial progress on IMF
governance; (2) greater attention to the policies of a broader group of systemically important countries, in
particular their exchange rate policies; (3) reestablishing the central role of the Fund in external financial
crises; (4) refocused engagement with low-income members; (5) attention to the capital account and
the financial sector; and (6) the need for additional IMF financial resources.5 This list did not include
financing the administrative budget of the IMF, in contrast with its lending operations. However,
4. Gordon Brown, “Out of the Ashes,” Washington Post, October 17, 2008, available at www.washingtonpost.com
(accessed on December 9, 2008).
5. I argued that the first three items in my six-part agenda were relatively more pressing.


Mohamed El-Erian (2006) addressed the issue at the conference, and I will cover the topic under the
IMf Governance
The principal focus of the recent IMF governance debate, and in fact the debate for at least 15 years,
has been on the formulas that traditionally have been used as the basis for IMF quotas and, in principle,
for periodic increases and adjustments in quotas. IMF quotas determine the amount of a country’s own
currency a member must lend to the Fund to finance its lending operations, are the basis for the amount a
member may borrow from the Fund, and the principal component of absolute and relative voting power
in the Fund. The distribution of voting power in favor of the traditional industrial countries derives from
the history of the Fund and the application of the basic formulas as it evolved until the late 1970s when
it was frozen (Truman 2006a, Cooper and Truman 2007).6 On these twin issues, there have been some
changes, but it is debatable whether these changes represent significant progress.7
With respect to the formula, the IMF executive board approved a new quota formula that replaced a
combination of formulas (IMF 2008b). The single new formula is simpler to understand and at least some
of the variables included are appropriate. The formula is a weighted linear combination of four variables:
a member’s share of global gross domestic product (GDP) with a weight of 50 percent, openness (trade
in goods and services) with a weight of 30 percent, variability of current receipts and net capital flows
with a weight of 15 percent, and international reserves with a weight of 5 percent. A “compression factor”
reduces the relative shares of a handful of countries with the largest shares and boosts the shares of all
other countries.
GDP appears as the weighted sum of two measures: GDP at market exchange rates (60 percent)
and GDP at purchasing power parity (PPP) rates (40 percent). Thus, the new formula has five variables.
Moreover, the GDP variables are the only ones that are free from criticism, although even here the
weights that have been assigned to the two measures are controversial. As detailed by Ralph Bryant
(2008a and 2008b) and by Richard Cooper and Edwin Truman (2007), the openness variable is not the
conventional measure of trade as a percent of GDP, but rather it is each country’s share of total trade in
goods and services, reinforcing the influence of each country’s economic size.8 The variability measure also
is not scaled by a measure of a country’s economic size, so it also tends to “reward” large countries over
7. For example, I advocated (Truman 2006a) a reduction in the combined voting share of the 26 traditional
industrial countries by 10 percentage points from more than 60 percent to about 50 percent. The proposed change
produces a quarter of this amount.
8. The measure has the added weakness that it fails to exclude intra–euro area trade.


small countries. Finally, in today’s world, where the size of a country’s reserve holdings is often a sign of
the extent to which it has been impeding the international adjustment process, it is questionable whether
that variable should be included in the formula at all.
After two and a half years of extensive, but not particularly imaginative, work by the executive board
and the IMF staff, the resulting new quota formula was decidedly disappointing. The formula points
in the wrong direction. At the time of its adoption, the new formula implied that the share of the 26
traditional industrial countries should increase by 2.2 percentage points vis-à-vis those of the other 159
members of the Fund.9
With respect to adjusting IMF quota and voting shares, the good news and the bad news is that
the executive board ignored the formula in recommending quota adjustments. The result was that the
advanced countries’ combined quota share in the Fund is proposed to be reduced by 1.4 percentage
points compared with where it was in 2005.10 Under the agreed proposal, the combined voting share of
the advanced countries would be reduced 2.6 percentage points, but almost half of that is due to the one-
time tripling of basic votes.11 Although a political and fairness case can be made for increasing the number
of each member’s basic votes (which have not been adjusted from the founding of the IMF in 1944),
under the agreed proposals, the overall result for countries that are small in economic size is modest. The
voting share of the 138 poorest members of the Fund would increase by a combined 0.52 percentage
points, while their quota share would decline by 1.47 percentage points.
Some argue that the reforms should have done something about the US veto in the Fund, which
is not an across-the-board veto but only allows the United States to block a short list of institutional
changes that require an 85-percent majority vote. This could have been done by lowering the US voting
share below 15 percent.12 Alternatively the 85-percent majority requirements could have been reduced to
80 percent. My view has been, and remains, that until the Europeans agree to a substantial reduction of
their combined voting share in the IMF from the current European Union share of more than 30 percent
to something close to the US share, reducing the US voting share below 15 percent is a nonstarter. As a
result of the proposed changes the EU voting share would decline only marginally from 32.5 percent to
30.9 percent. The Fund would remain a European-dominated institution.
9. The new formula implies a set of pro forma quota shares for these countries, that is 1.8 percentage points less than the
old formulas, but the old formulas had been ignored. The actual combined quota share of this group was 4 percentage
points below what was implied by the old formulas.
10. The quotas of four members (China, Korea, Mexico, and Turkey) were adjusted in 2006 in the first round of the
quota-reform effort, resulting in a slight reduction in the voting shares of the traditional industrial countries. The United
States and a few other countries magnanimously gave up part of the increases in their quotas to which they were “entitled”
under the application of the new quota formula, but this just underscores the weakness of the formula and the scope for
blocking future progress.
11. A member’s voting power in the IMF consists of a certain number of basic votes (to be raised from 250 to 750) plus
one vote for each SDR 100,000 of its quota.
12. The US voting share is to be lowered by 0.3 percentage points to 16.732 percent compared with where it was in 2005.


Why were the Europeans able to work their way to prevent a meaningful shift in IMF power and
influence in the Fund away from them, in particular given the overall lack of coherence in their national
positions? One answer is that the two European managing directors (Rodrigo de Rato and Dominique
Strauss-Kahn) who oversaw the process did not push hard for change because they needed European
support on other issues. In particular, the staff was not encouraged to put on the table quota formulas
that would point to significant change. A second answer is that the United States, which did push hard
for and was open to substantial change, was not ready to go to the mat with the Europeans and raise
the issue to the highest (i.e., presidential) political level. A third answer is that the other members of the
Fund, which hold about 40 percent of the voting power and thus in principle were able to block any set
of proposals, lacked the cohesion to do so and enough of them were bought off by the contents of the
final package. My own answer is all of the above plus a lack of consensus in the membership about what
was needed to enhance the IMF’s legitimacy and why. The crisis of legitimacy was a rallying cry without
well-directed content.
Some argued in the spring of 2008 that these proposed changes in the formula, in basic votes, and
in actual quotas are just a first step, and the process will continue. Since it took 30 years to bring about
these changes, one could be excused if one were skeptical about whether the members of the Fund will
event that transforms the debate. The issue is whether the global financial crisis and associated world
recession provides that catalyst.
A second high-profile governance topic for the IMF has been the process by which it chooses its
senior management—the managing director and three deputy managing directors. By convention, the
managing director is a European and the president of the World Bank is a citizen of the United States.
There have been various efforts to break this convention; see Miles Kahler (2001, 2006) for descriptions
of those efforts. In 2007 Managing Director Rodrigo de Rato resigned, in the middle of the IMF reform
effort he had initiated in 2005, and was replaced by Dominique Strauss-Kahn. His appointment came
shortly after Robert Zoellick replaced Paul Wolfowitz as president of the World Bank. In both of these
transitions, the convention held, though in the case of Fund, as has been the case in several previous
elections, the election was contested. That has never happened in the World Bank.
On October 12, the Development Committee of the World Bank and IMF declared: “There is
considerable agreement on the importance of a selection process for the President of the Bank that is
merit-based and transparent, with nominations open to all Board members and transparent consideration
of all candidates.” This agreed approach, which is nonbinding, would only align the Bank’s actual
practices with those of the Fund during its last three elections of managing directors. Nevertheless, the
US-European consensus may well be renounced or destroyed before the next elections, scheduled for
2012 at the latest.


The third governance topic is representation on the 24-member executive board, which is
dominated by 7–10 Europeans depending both on how you count Europeans and on the day of
the meeting.13 Many critics and observers inside and outside Europe have endorsed a total or partial
consolidation of European representation in the Fund (Ahearne et al. 2006).14 As a facilitating step,
the US government in early 2008 proposed (McCormick 2008) amending the IMF Articles so that
all executive directors would be elected, along with a progressive reduction in the size of the board to
20 members from the current 24.15 Nevertheless, the Europeans blocked any serious discussion of this
issue. The only change that has been proposed is to amend the Articles of Agreement to provide for an
additional alternate executive director in constituencies with more than 19 member countries.
This list does not exhaust the agenda for IMF governance reform. The Independent Evaluation
Office (IEO) of the International Monetary Fund (2008) issued a critical evaluation of the effectiveness
and efficiency of the governance structures of the IMF including the executive board, management,
and the IMFC. In partial response, in September 2008, managing director Strauss-Kahn appointed a
committee of eminent persons under the chairmanship of South African minister of finance Trevor
Manuel “to assess the adequacy of the Fund’s current framework for decision making and advise any
modifications that might enable the institution to fulfill its global mandate.”
One proposal favored by former managing director Michel Camdessus (2005) is the creation of a
Council with formal decision-making power to replace what was once called the Interim Committee and
is now called the International Monetary and Finance Committee.16 The Development Committee, under
this type of approach, might well become a body relating solely to the World Bank rather than its current
status as a joint committee of the governors of the two institutions. The 2008 IEO evaluation of IMF
governance endorsed the Council proposal as a device to force ministers to pay more attention to their
responsibilities vis-à-vis the IMF. Such a device falls in the category of leading a horse to water without
being able to force him to drink. Finance ministers in general are chosen to manage their own economies,
are preoccupied by such domestic issues, and do not have the time, space, inclination, or experience to
think in great detail about issues of the global collective good.
A final topic under the heading of IMF governance is how much of that governance should be
13. Does Europe include Switzerland or just the European Union? In some constituencies the alternate executive director
comes from Europe while the executive director does not; for example, he may come from Mexico or Venezuela in a case
where the alternate is from Spain.
14. I have proposed a multistep consolidation of European representation (Truman 2006a).
15. The Articles require that the five members with the largest quotas select rather than elect their executive directors. In
fact, there are now a total of eight single-country constituencies (China, Russia, and Saudi Arabia in addition to the G-5 of
France, Germany, Japan, the United Kingdom, and the United States).
16. The amendment of the Articles of Agreement that went into force in 1979 provided for the establishment of a
Council.


exercised by outside bodies such as the G-7, the newly invigorated G-20, a slightly smaller group like
the F-16 (Bergsten 2006), a new G-14 (Zoellick 2008), or one or more Gs but always with a secretariat
supplied by the IMF (Strauss-Kahn 2008).17 That there will be some type of steering committee for the
IMF and global economic and financial topics more broadly is demanded by efficiency, as even Strauss-
Kahn has admitted. That it should be broader than the G-7 is increasingly obvious. Exactly what form it
should take is a more difficult question. As Bergsten (2006) argues, the size and effectiveness of any new
steering committee is linked to the future of the European Union and its representation in international
forums.18 My expectation is that the meeting of the G-20 leaders in Washington on November 15, 2008,
preceded by the meeting of the G-20 finance ministers and governors in Sao Paulo, Brazil on November
8–9, will be remembered more for marking the beginning of the end of the G-7 at both levels than for
any resulting financial reforms. Crisis brings progress!
Policies of Systemically Important Countries
It follows from the observation that the G-7 is no longer an appropriate steering committee for the
international economy and financial system that the list of systemically important countries should be
lengthened.19 For some time, many observers have argued that the IMF should be more assertive in its
role as a global umpire. Much of the focus of such criticism has been to encourage the Fund (meaning
members but also its management) to pay more attention to member countries’ exchange rate policies
(Goldstein 2006, Williamson 2006).
What does it mean to call for the IMF to be a “better global umpire”? Different countries and
observers will offer different interpretations. At one level, a better global umpire would do a better
job enforcing agreed rules, in particular when those rules are cast in the IMF Articles of Agreement
as obligations of members of the Fund, which is the case for exchange rate obligations: to “avoid
manipulating exchange rates or the international monetary system in order to prevent effective balance of
payments adjustment or to gain an unfair competitive advantage over other members” (Article IV, section
1 (iii)). These are strong obligations, but the management and staff of the Fund in recent years (through
at least mid-2007) had failed to enforce them.20 The responsibility for that failure lies in part with the
Fund’s member countries. Consensus on the interpretation of those obligations had dissipated, if it ever
existed. Moreover, some countries had their own agendas. The members of the European Union wanted
17. Bergsten’s “F” was intended to distinguish meetings at the level of finance ministers from meetings at the leader level,
which would be designated with a “G.”
18. See Bradford (2008) for a review of some of these representational issues at the leader level.
19. I argued this position in A Strategy for IMF Reform (Truman 2006c).
20. See IEO-IMF (2007) and Mussa (2008).


to build a fixed exchange rate regime (and later a common currency) and kept the IMF at arm’s length
when the exchange rate mechanism (ERM) came under stress in 1992 as well as in 2008 when pressures
were building on the currencies of EU members that are not yet in the euro area. The issuers of the G-
3 currencies (the US dollar, euro, and yen) have blocked discussions in the IMF executive board of the
global exchange rate arrangements for more than a decade.
In areas of the IMF’s responsibility other than exchange rate policies and their economic effects, the
obligations on IMF members are generally less well defined.21 An example is the obligation to cooperate
in the pursuit of common economic and financial objectives via participation in the surveillance activities
of the Fund—bilateral, regional, and multilateral. To be successful in these areas, the members of the
Fund must, first, share a consensus on the role of the Fund; second, recognize a common interest in
preserving and protecting that consensus; third, be willing to allow Fund staff and management to call
them to task about their associated obligations and commitments; and fourth, tolerate those processes
even when doing so is politically inconvenient. For its part, the management and staff must play its
assigned role consistently over time and across member countries. For the umpire, not only are the rules
important, but their consistent application is as well.
Over the past several years, IMF members (via the executive board) and management (via the staff)
have endeavored to update the IMF’s surveillance role, in particular, with respect to the systemically
important countries: expanding the list of such countries, revamping the 1977 decision on surveillance
over the foreign exchange policies of members, addressing the problem of global imbalances, and
establishing a set of surveillance priorities.
With respect to expanding the list of systemically important countries, the IMF management
expanded the country coverage of its staff-level Consultative Group on Exchange Rates (CGER) to
include a number of emerging-market members, and the staff published a report on their methodology
for doing this work (Lee et al. 2008).22 The IMF staff also started to incorporate into Article IV
documents its judgments about whether a member’s exchange rate was undervalued or overvalued,
but many members deleted or scaled back this material before the reports were released to the public.
In general, my unscientific impression is that there has been somewhat of an increase in the critical
content about countries’ economic and financial policies in Article IV documents with limited impact in
particular in the case of exchange rate policies.
21. One exception is the obligation to provide certain information to the Fund. Not all members are scrupulous in this
area either.
22. The IMF did not take the advice of John Williamson (2006): to establish a set of reference exchange rates for major
currencies to guide the IMF in conducting its surveillance of exchange rate and other economic policies of members.
William Cline and Williamson (2008) endeavored to plug this hole by publishing a set of fundamental equilibrium
exchange rates for major countries and currencies consistent with internal macroeconomic balance and external
imbalances.
0

# Document Outline

• WP 08-11 On What Terms Is the IMF Worth Funding?
• Abstract
• The State of Play on IMF Reform
• IMF Governance
• Policies of Systemically Important Countries
• The Central Role of the Fund in External Financial Crises
• Refocused Engagement with Low-Income Members
• The Capital Account and Financial Sector
• The IMF and the Global Financial Crisis
• Diagnosis of the Crisis
• The Role of the IMFImmediate Recommendations for the Obama Administration
• The Role of the IMFĄInternational Financial Supervision and Regulation
• On What Terms Is the IMF Worth Funding?
• References

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