A Financial Architecture for the 21st Century: A Case for Major IMF Reform

January 28, 2006
World Economic Forum Annual Meeting 2006

“The IMF is in something of a funk and its current malaise has been described by some like a rudderless ship adrift in a sea of liquidity." – Nouriel Roubini, Professor of Economics, Stern School of Business, New York University.

Due partially to the emergence of easily accessible private bank loans, the IMF is in need of major reforms, including flexibility of exchange rates and changes to their governance. Professor Roubini recommends a shift in the voting powers within the IMF to include more votes for emerging Asian economies, less European votes, and an additional vote for Africa. He suggests that the IMF should serve as a last resort for lending, leaving the bulk of loans to private banks, which are better equipped to provide lower interest rates for developing countries. The IMF should serve more of a surveillance role, and a referee of exchange rates, to ensure that there is global balance.

The main concern of the IMF should be to address global markets and their efficiency. Measuring market efficiency is an issue undertaken by the G-20 once a year. The G-20 is an informal forum for developing and industrialized countries to discuss issues relating to global economic stability, such as national policies, international cooperation, and international economic and financial institutions. The members of the G-20 include the finance ministers and central bank governors of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea,Turkey, the United Kingdom and the United States of America. Together these countries amount to 90% of global GNP, 80% of world trade, and two-thirds of the world population.

The G-20 cooperates with several other international organizations in order to develop positions and solutions to complex issues. This year the G-20 is likely to hear several issues on IMF reform and take a position on what functions they believe the IMF should perform.

For more information on potential IMF reform see:
http://www.weforum.org/site/knowledgenavigator.nsf/
Content/_S15852?open&event_id=1462&year_id=2006

For more information on the G-20 see:
http://www.g20.org/Public/index.jsp