VZCZCXRO0503
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0143/01 0370913
ZNR UUUUU ZZH
R 060913Z FEB 08
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 4832
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 5856
RUEHBJ/AMEMBASSY BEIJING 2741
RUEHBY/AMEMBASSY CANBERRA 2111
RUEHHK/AMCONSUL HONG KONG 6347
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 SINGAPORE 000143
SIPDIS
STATE PASS TREASURY FOR RKAPROTH AND RDOHNER
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON ETRD EINV SN
SUBJECT: IMF REFORM: ECONOMISTS, OFFICIALS AT SINGAPORE CONFERENCE
OFFER ASIAN PERSPECTIVES
1. (SBU) Summary: Asian economists and officials attending a
Singapore conference agreed that the International Monetary Fund's
(IMF) voting and board structure must change to become more
representative of Asia's dynamic economies. Despite low
participation by Asian officials and regulators in financial sector
programs, they want the IMF to improve its expertise in financial
sector issues in both developing and developed countries --
especially in the context of current market turmoil. Many Asian
players, particularly the Indonesians, criticize the inability of
the ASEAN and ASEAN plus 3 (China, Japan, and South Korea) groupings
to effectively force neighbors to address underlying macroeconomic
and financial sector problems. Encouragingly, they favor enhanced
links between their own regional economic integration initiatives
and greater use of the IMF's macro-economic surveillance programs
and expertise. End summary.
Asian Views of IMF's Future Role
--------------------------------
2. (U) Senior Asian economic policy makers and academics held a
closed-door, off-the-record discussion on "Asian Perspectives on the
Future Role of the IMF" that the Lee Kuan Yew School of Public
Policy in Singapore and the Friedrich-Ebert-Stiftung Foundation of
Germany hosted on January 18. Approximately 50 high level
representatives from central banks, finance ministries, development
institutions, think tanks and universities across Asia, as well as
from the United States and Germany, attended the full day of events.
Many participants had spent at least part of their career working
at the IMF. This conference follows similar meetings in Cape Town
and Buenos Aires held last year to solicit regional views on IMF
reforms.
Support for Quota Reform
------------------------
3. (SBU) Regional participants concurred that reform of the IMF's
governance structure is vital to give the institution more
legitimacy in Asia. Except for the German representative, all
participants agreed that the Europeans must give up a significant
share of their quota and board seats in order to make the Fund more
broadly representative of its membership. (Note: Quotas represent
the share of the IMF's capital that countries must contribute, and
also play a role in calculating the amount of resources a country is
eligible to withdraw from the IMF for balance of payments support in
an emergency. The 27 members of the European Union currently have
31 percent of the quota compared to the United States at 17 percent
and Asian countries, which have a combined quota of 17.6 percent
(see Table 1). The Europeans hold 8 of the 24 seats on the IMF
executive board. End note.)
Table 1. IMF Quotas for Selected Countries and Regions
United States 17.08 Germany 5.98
Japan 6.12 United Kingdom 4.94
China 3.72 France 4.94
India 1.91 Italy 3.24
Korea 1.35 Netherlands 2.37
Advanced countries (26) 60.51
--excluding U.S. and Japan 37.32
European Union (27) 31.60
Developing Asia (32) 11.52
Developing Asia plus Japan 17.64
Source: Petersen Institute for International Economics Policy Brief
07-01, February 2007.
Rich Countries Disengaged From the IMF?
---------------------------------------
4. (SBU) Regional participants were critical of the quality of IMF
staff, especially on financial sector issues, although they
acknowledged that the Fund's "best and brightest" might be better
utilized in "crisis" areas in other parts of the world. Many voiced
the perception that rich countries are disengaged from the IMF.
They accused rich countries of allowing the Fund to criticize
smaller/poorer countries without heeding its advice themselves.
They argued that the disengagement on developed country issues has
resulted in a loss of expertise among Fund staff in cutting edge
financial and economic issues. Some questioned, for example, why
the Fund has not predicted the U.S. subprime crisis and why Fund
staff were not out front telling the United States and Europe what
to do about it. (Note: Since the conference, the IMF's managing
SINGAPORE 00000143 002 OF 002
director has vocally called on the United States and other countries
with the requisite capacity to expand fiscal spending to offset a
global slow down. End note.)
IMF Links to Regional Economic Initiatives
------------------------------------------
5. (SBU) Many of the regional participants, led by the Indonesians,
were critical of their own ability to do proper macroeconomic
surveillance as called for under the ASEAN or ASEAN plus 3
initiatives. They recognized that the non-confrontational approach
known as the "ASEAN way" had led to low quality discussions with
very little capacity to rein in poor economic performers. They also
acknowledged that the limited number of well-trained regional
economists makes it difficult to properly staff a regional
institution to replicate the higher quality assessment provided by
IMF surveillance programs, most notably the annual Article IV
review.
6. (U) Participants noted that ASEAN plus 3 countries had taken
steps to address these shortcomings. In particular, ASEAN plus 3
has invited the IMF to become more involved in regional economic
integration efforts in two ways. First, since mid-2005, IMF staff
have prepared and presented economic overviews for the ASEAN plus 3
Finance Ministers Deputies Meetings. Second, participants in the
Chiang Mai Initiative (bilateral currency swap arrangements) made
disbursement of 80 percent of the swap amount contingent on the
borrowing country's participation in a sanctioned IMF stabilization
program. Conference participants were eager to maintain these
linkages and to look for other areas where IMF expertise could
inform regional discussions and programs. Some suggested IMF
participation in a discussion on regional exchange rate
coordination.
Comment
-------
7. (SBU) Asian officials and economists remain ambivalent about the
IMF and the role it should play in the region. The public and
politicians in the region continue in many cases to vilify the IMF
as the cause of the hardships brought on by the Asian financial
crisis in 1997-1998. On the other side, economic officials and
regulators argue in favor, usually more in private than in public,
of retaining, if not bolstering, the IMF's technical advice and
expertise. Even though Asia would be a primary beneficiary of more
representative quotas at the Fund, Asian officials have not spoken
up publicly in support of reform. Nor have they pushed the
Europeans to give up quotas and board seats to make room for more
Asian participation. Asian policy makers say they want more
technical financial sector advice, but only 17 percent of Asian
countries have participated in the IMF's Financial Sector Assessment
Program (FSAP), the premier program in the field -- well below the
49 percent African participation rate. While IMF linkages to ASEAN
plus 3 programs are encouraging, Asian economic officials need to
show more leadership and engagement if they want a reformed IMF to
meet their needs.
HERBOLD