Opinion | Given the growing discontent in Asia, the question arises: is a world war necessary to reform the IMF?

June 22, 2024

Or as former Governor of the Bank of England, Sir Mervyn King, wrote in his book: The end of alchemy: “The world of Bretton Woods is long gone, and with it the effectiveness of the post-war institutions that shaped it – the IMFThe World Bank and the Organisation for Economic Co-operation and Development (OECD).”

For Asia, there is some consolation, albeit a faint one, in the fact that the region is likely, as King wrote, to “develop its own informal arrangements that are essentially a Asian IMFan idea that was floated at the IMF’s annual meeting in Hong Kong in 1997 and was quashed by the United States.”

A major debate has begun on the future of the IMF, which has 190 members. It was launched at the spring meeting of IMF finance ministers and central bank governors, who called on the Fund to Reforms by June Next year.

IMF managing director Kristalina Georgieva addresses a press conference after attending a Eurogroup finance ministers meeting in Luxembourg City, Luxembourg, on June 20. Photo: EPA-EFE — IMF Managing Director Kristalina Georgieva speaks at a press conference after attending a meeting of Eurogroup finance ministers in Luxembourg City on June 20. Photo: EPA-EFE

Earlier this week, the IMF’s independent evaluation office released a report entitled “The Evolving Application of the IMF Mandate,” which questions the IMF’s “comprehensiveness, inclusive decision-making, transparency and impartiality” in its work in certain policy areas.

At least theoretically, the outcome of the debate could prove epochal if it offers emerging economies such as China, India and others the opportunity to “Quotas” (which determine members’ contributions to the Fund) and voting rights to exercise more influence within the IMF and US veto power.

Fundamental reforms of governance and quotas within the IMF are needed, as Rajan (a former governor of the Reserve Bank of India and now an economics professor at the University of Chicago) put it. But whether a world that is politically divided, economically polarized and in some places literally at war can agree on such far-reaching reforms is, to put it politely, questionable.

Like any multilateral body, the IMF has only as much power as its (quarrelsome) owners allow it. Sometimes it seems that great reforms only follow great wars, and that has long been the case, not least since World War II. Nations, systems and cultures collide, and from the battered and exhausted remains, new idealism emerges – at least for a while.

Can such reform zeal now emerge without a catalytic or cathartic conflict? Perhaps the best we can hope for is that, as with the World Trade Organization, which in fact lost its global mandatethe IMF will give way to regional currency agreements.

Argentine Economy Minister Sergio Massa and Chinese ambassador Zou Xiaoli shaking hands after agreeing to activate the currency swap between both countries in Buenos Aires on April 26, 2023. Under the swap, Argentina pays for imports from China in yuan, rather than in US dollars. Photo: Handout by Argentina’s Economy Ministry / AFP — Argentine Economy Minister Sergio Massa and Chinese Ambassador Zou Xiaoli shake hands after agreeing to activate the currency swap between the two countries in Buenos Aires on April 26, 2023. Under the swap, Argentina pays for imports from China in yuan instead of US dollars. Photo: Handout from the Argentine Economy Ministry / AFP

Would it really be so bad without it? After all, the IMF has also made its share of policy mistakes, such as during the Asian financial crisis of 1997, when Washington economists failed to recognize the fundamental nature of the crisis and the IMF pushed through the wrong solutions.

But that is not the point. The world is in chaos from which only a supranational body can rescue us. Geopolitical tensions threaten to assume seismic proportions. Climate change a global catastrophe threatens, a new global financial crisis is looming Debts are risingMigration is simmering, pandemics have raised their ugly heads and populations are aging fast.

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We will most likely need some kind of world government to deal with such mega-crises, and we will need it urgently. But at the political level, such an authority is not yet in sight. The next best place to turn is the multilateral institutions – not least the IMF.

As Rajan put it, the IMF should be able to “provide an independent voice for national policies – particularly those that threaten the country’s macroeconomic stability – and serve as a lender of last resort to countries that are losing market confidence.”

The IMF should also be able to encourage countries to adopt policies that promote the fair exchange of goods, services and capital and complement the WTO. Most importantly, it should be able to be an independent voice in national policy. But as Rajan puts it, the IMF’s “anachronistic structure leaves it ill-equipped to perform all of these functions.”

This structure, Rajan argues, has no logical basis nor is it based on the economic size of IMF member countries, but rather reflects “the desire of the Western alliance to hold on to power.” If IMF members reformed quotas and governance simultaneously, he added, an independent IMF could bring the fragmented world together on key issues.

From my more than 40 years of experience as a journalist covering IMF affairs, I would say “Amen” to that, but I also expect that real reforms will only come in the wake of further crises that could prove dramatic and traumatic.

Anthony Rowley is an experienced journalist specialising in Asian economic and financial issues.

Tags:Asia, Bretton Woods, China, IMF, International Monetary Fund, Quota, Reforms, US Veto, USA, Voting Rights, World Bank

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Opinion | Given the growing discontent in Asia, the question arises: is a world war necessary to reform the IMF?

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