US Calls For Comprehensive Reform of IMF

The United States is stepping up its call for a comprehensive reform of the International Monetary Fund (IMF) in order to better support global growth and respond to global economic challenges.

In a speech to the Peterson Institute for International Economics in Washington, David McCormick, Under Secretary for International Affairs at the US Treasury Department, underlined the need for a reform package aimed at making the IMF more relevant in today’s economic system.

“The world economy is constantly changing, and the IMF must now change with it, as it has successfully done in the past, McCormick said in his address. “At the highest level, the IMF’s core mission remains promoting an open and growing world economy and the smooth functioning of the international monetary and financial system.”

McCormick said the US Administration “wants to see the IMF continue its record of success into the future” and proposed three important steps to ensure that the organization evolves how it and its departments perform their mission, governance, and operating model so that they can continue to play a central role in the global financial system.

“First, the IMF needs to evolve how it performs its mission to meet the forward-looking challenges of the international monetary system,” McCormick said. “Second, it needs to reform its governance structure to reflect the growing weight of dynamic emerging markets in the global economy. Third, the IMF needs to change its operating model to reflect its new mission, ensure ongoing budget discipline, and put in place sustainable sources of income.”

The three areas of reform “must be, in my view, the priority for all stakeholders who are committed to an effective, sustainable, and relevant IMF,” he said.

McCormick stressed that the rise of dynamic emerging markets, especially in Asia, is a remarkable and welcome development, accounting for more than half of the growth in the world economy in the past five years.

“The IMF must now adapt to accommodate the increasing weight and responsibilities of these emerging economies,” he said. “That means updating the IMF’s outmoded governance structure, which reflects more the economic realities of the 1970s than the global economy of today. As a result, as many countries have seen their relative weight in the world economy rise sharply, they have also seen their voting weight in the IMF fail to keep pace.

The US Administration is also proposing a reduction in the number of chairs in the IMF Board from 24 to 22 seats in 2010, and to 20 seats in 2012.

“In doing so, the number of developing and emerging market country chairs should be preserved,” he said. “To allow for greater voice of emerging markets and low-income countries, we also advocate an amendment to the Articles so that all Executive Board members are “elected,” abolishing the current practice of “appointed seats” for the five largest shareholders.”

Such a move would eliminate the rule that reserves positions for the US, Japan, Germany, France and Britain in the Board, resulting in a fewer European directors on the IMF governing body.

McCormick recognized the the important steps already accomplished by the IMF leadership, and thanked Managing Director Dominique Strauss-Kahn, Treasury Secretary Hank Paulson for their guidance in this long-term reform process.

“The reforms I have just described are significant, comprehensive, and achievable, and like compounding interest will deliver substantially increased benefits over time,” he concluded.

For more, see The Gstaad Project

© Scoop Media