A decade ago this summer, cascading financial crises rocked East Asia, pummeling stock markets in South Korea, Thailand, Indonesia, Hong Kong, and a handful of other regional economies. Currencies across Asia dipped against the U.S. dollar and the worst hit suffered heavy, sustained losses (PDF). Throughout most of the world, the period became known as the East Asian financial crisis. In some Asian countries, however, it is still called the “IMF crisis.” The International Monetary Fund (IMF), critics say, bears blame for failing to provide enough emergency lending to stave off the crisis (Bloomberg), and also for tethering loans to strict policy requirements that only deepened economic woes. The IMF, in a working paper (PDF), disputes this viewpoint and contends that its intervention helped stem the crisis and set national efforts at recovery “on a more solid footing.”
Ten years on, the IMF again finds itself under the microscope, albeit for different reasons. Now it is a lack of financial crises that has people questioning the Fund. Since the late 1990s, no major monetary flare-up has disturbed global markets (WashPost), and some analysts question whether the body may have outlived its relevance. In an era of greater liquidity, private lenders are often able to swoop in at times of financial crisis and provide loans to borrower nations without any of the political strings the IMF is wont to attach.
Simultaneously, the IMF takes heat about the legitimacy of its leadership. In an agreement that is more than sixty years old, Europe carries sole responsibility for appointing the Fund’s managing director (the United States, in exchange, appoints the World Bank’s president). Developed Western nations also overwhelmingly control the IMF’s executive board. Ralph C. Bryant of the Brookings Institution writes that this may have been a workable compromise at the time, but today “cannot even be defended as politically acceptable.”
A new Council Special Report by CFR Senior Fellow Peter B. Kenen examines the IMF’s identity crisis with an eye toward preserving the Fund’s future relevance. The report disputes claims that the need for the IMF is on the decline, pointing out that despite recent economic stability, looming monetary imbalances make it imprudent to consider doing away with the body best equipped to deal with crises. Kenen cites fiscal imbalances between established industrialized countries on one hand, and developing East Asia and the world’s leading oil producers on the other. So far as legitimacy questions are concerned, however, Kenen acknowledges imbalance and recommends replacing the European-dominated selection-process for the IMF’s managing director.
Some analysts call for yet more drastic reforms. Harvard economist Robert J. Barro, for instance, argues the IMF should do away completely with the practice of economic bailouts, and instead focus on giving targeted short-term loans (PDF) to reliable, solvent economies. Edwin M. Truman of the Peterson Institute for International Economics suggests the Fund’s current initiatives to resolve global monetary imbalances are likely to fall flat until China is given more robust representation in IMF governance. Last year, the Fund held its annual meeting in Southeast Asia, apparently in an effort to reaffirm its commitment to the region. Circularly enough, the IMF may now find itself seeking affirmation from countries it once worked to assist.