Sunday’s communique from the International Monetary and Financial Committee (of the Board of Governors of the International Monetary Fund) is incredibly bland, even by their usual standards. The degree of self-congratulation and complacency is slightly less pronounced than what we saw from the G20 in Pittsburgh, whose final statement contained a classic moment of hubris when the entirety of paragraph 5 read: “It worked.”
Still, the IMFC (representing all IMF member countries) seems to be in the same cloud cuckoo land as the G20 leaders.
This is not surprising, as the IMF appears to be increasingly under the auspices of the G20--despite the fact that this is extremely awkward from a formal governance point of view. The IMF has 186 members; the G20 has 19 or perhaps up to 25, depending on how many Europeans manage to gate crash on a continuing basis. Who elected the G20 to run the world?
Perhaps this arrangement would be tolerable if the G20/IMFC had an agenda for really avoiding a recurrence of our recent financial crisis and crash, but they do not.
“We will remain vigilant to prevent financial sector excesses and reaccumulation of unsustainable global imbalances.” (paragraph 2) is about the scariest wording you can imagine in this context. Do you really think the financial sector respects or will even notice official “vigilance”? They are giggling on Wall Street.
And, in this context, is reference to “global imbalances” anything other than a smokescreen (or another strange kind of joke)--see our Washington Post online column, for more on this point.
“We intend to adopt an open, merit-based and transparent process for the selection of IMF management at our next meeting” (paragraph 5) is moderately interesting, but only because it appears to step back from committing to appoint a non-European (and non-U.S.) person as the next managing director of the IMF. The current incumbent is presumed on his way to campaign for the presidency of France (and as a smart politician, likely wants to quit while he’s ahead), and appointing a replacement from India, China, Brazil, or another major emerging market could be a significant move. But signs, behind the scenes, from both Europe and the White House are not exactly encouraging in this regard; they just don’t want to give up “jobs for the boys” and the option value that creates--in some future crisis, you might want your guy in the managing director job, which comes with great discretion and no constraints under the usual rule of law.
The quota reform (paragraph 4) adds nothing new, and certainly not enough to really restore Asian confidence in the IMF. The Flexible Credit Line (paragraph 9) is a sensible and long overdue innovation. But why has it been taken up by only three countries (Poland, Mexico, and Colombia)? Unless there are more customers in the pipeline soon, the lack of use for this facility will further underline the IMF’s continuing issues with legitimacy among emerging market member countries. Tripling the IMF’s resources (paragraph 8) could only help stabilize the world’s economy if countries are willing to borrow on a precautionary basis or when they first come under pressure.
And, given the clear international commitment not to tackle growing problems in the global financial system, intense pressure is what we should expect.