The IMF’s 80 Anniversary – A Time for Cheer and Reflection on the Future and New Terrain

This year marks the 80th anniversary of the IMF’s founding, an occasion to cheer the Fund’s enormous success, examine what is working and draw lessons for the future.   

The IMF throughout its history has been a dynamic organization, contributing mightily to the global economy’s advancement.[1]  It has done so by adhering to its core mandate, while evolving in response to fundamental worldwide economic and political changes.  The Fund’s successes reflect its nearly universal membership’s shared interest in economic/financial stability and ability to bring nations together.  When stresses and crises erupt, the international community turns to the IMF as the first responder.

How can the IMF thrive for the next 80 years?  Primarily by adhering to what works – focusing on its shorter-term character and core mandate of fiscal, monetary, external and financial sector/stability policy. 

IMF Activities

IMF activities can be boiled down to macroeconomic/financial surveillance, technical assistance, and program lending.

Macroeconomic and financial surveillance – multilateral (WEO/GFSR) and bilateral (Article IV) -- are a global public good.  Especially in many low(er) income countries, IMF work provides data and insights not attainable elsewhere.  For advanced economies and larger EMs, that is not necessarily the case. 

Even absent a surveillance monopoly, the IMF’s excellent staff’s views always merit consideration.  To be sure, IMF views can succumb to group-think – e.g. It’s Mostly Fiscal.  Fund teams often engage in self-censorship and fall short on external analysis and ruthless truth telling.

For the future, the Fund should continue strengthening its surveillance and using its remarkable convening power and bully pulpit – especially at a time of “fragmentation” -- as a global force for multilateralism and sound policy.

IMF technical assistance is universally valued.  The Fund’s better off members should provide enhanced financing for capacity development.

Program lending has long been controversial and unfairly criticized.  The IMF allocates the need for reforms, new money and debt relief.  Fund policy prescriptions are surely not always on the mark.  But that would be an unrealistic expectation -- like an emergency room doctor, the IMF often makes urgent decisions in dire situations with imperfect information.  Countries facing distress and lost access to financing have little alternative but to tighten belts.  In such cases, IMF support provides breathing space.  But the counterfactual is not readily understood and the Fund is often decried for austerity.  The IMF has done a much better job backing social safety nets and pro-poor spending.

The landscape facing Fund lending and access to resources has changed dramatically.  Since the late 1990s Asia/EM crises, major EMs have adopted sounder economic frameworks[2] and borrow far less under upper credit tranche programs.  Some use IMF precautionary facilities, but there are limits to “insurance” demand.  These developments increasingly leave the Fund backing difficult prolonged users – e.g., Argentina, Pakistan, Egypt, Sri Lanka.  The Fund should rethink how it deals with its “wards”.  Business as usual isn’t working.

Low-income countries (LICs), especially in Sub-Saharan Africa, face enormous developmental challenges.  IMF LIC lending has become a major activity with more than 30 programs currently.  It is financed by voluntary national loans, plus subsidy resources to allow such lending at zero percent interest. Macroeconomic stabilization is a necessary but not sufficient condition for LIC growth and poverty reduction. The IMF should mobilize more subsidy resources by using a portion of its internal resources and/or selling a limited amount of its gold holdings.[3]

EM sovereign debt restructurings have been manageable in the recent past. But LIC debt distress is an increasing challenge.[4]  Unlike in previous decades when Paris Club members eliminated LIC debts, these are now frequently owed to “non-traditional” official creditors, often China.  Powerful Chinese domestic actors, private and public, seek to minimize losses and avoid haircuts.  Private sector intransigence on comparability of treatment creates further obstacles.  

IMF debt sustainability assumptions are key to determining the relief distressed countries may secure.  The Fund at times seems more interested in reaching deals, even with program targets that don’t address overhangs. 

The Fund, through the G20’s Common Framework and bilateral work, is pressing for speedy official debt relief.  Progress is being made, but very slowly and with mixed results.  The Fund should forcefully push for deeper relief and tackling overhangs, while raising its voice.

Governance

IMF governance needs to evolve.  The US/Europe duopoly over heading the World Bank and IMF makes little sense.  The recent addition of a 25th IMF Board seat for Sub-Saharan Africa is welcome.  While the Fund between 2006-15 shifted nearly 10% of quota shares to dynamic EMs, China remains hugely underrepresented[5] – and perhaps several others (India, Indonesia, Vietnam) -- while Europe is immensely overrepresented on chairs and shares.  Better balancing shares/chairs to reflect global GDP weights with “democracy”, while avoiding the ineptitude of a one-vote or consensus organization, is an ongoing challenge.

New Terrain – Beyond the Core?

In recent years, debates have erupted over the Fund’s role in new terrain such as climate change, gender balance, AI, digital finance, and inequality.  The Fund’s instinct, especially Management’s, is to be a global leader at the front of the pack. 

Climate change, for example – is humankind’s greatest existential challenge.  Should the IMF – a central global organ – be front and center in the fight? The Bridgetown Initiative and other financing ideas ascribe a highly expansive IMF financing role, including through the use of SDRs.

An oft-used standard for determining the IMF’s role is “macro-critical”.  

Issues such as removing fossil fuel subsidies, carbon taxation, a small island economy budgeting mitigation/adaptation resources, and climate finance scenario analysis, for example, are macro-critical.  The IMF’s Resilience and Sustainability Facility is helping members address macroeconomic related climate issues.  But its maturities extend well beyond the Fund’s shorter-term character.  There can be blurring with the activities of Multilateral Development Banks.  The SDR is a reserve asset for supplementing a shortage of global liquidity, which hardly exists.[6]

Increased female workforce participation can be macro-critical in boosting growth and prosperity, but does the IMF have much specifically to offer in its domain? Digital money is more fertile terrain for in-depth IMF work.

Macro-criticality is an elastic concept, potentially giving rise to distance from the Fund’s raison d'être. 

On new terrain, the Fund should better define the perimeter of its role – especially given its shorter-term/core mandate and budget realities -- and how to collaborate when needed with others.

Conclusion

Over the next 80 years, the need for international monetary cooperation and the IMF will remain as pressing and daunting as it has since 1944.  At times, the global economy may be quiescent with the Fund offering surveillance and TA – including as appropriate in new terrain -- ready to quickly mobilize and reprise its traditional large-scale first responder role when the global economic and financial system is inevitably hit by shocks and crises. To replicate its achievements, the IMF should hew to what has made it so successful.