US Calls for IMF Reform

SOURCES: Financial Times

On February 27, 2008, the US added additional pressure on the IMF to reform for better governance. The US is requesting some changes on the executive board and additional requests including a deal to increase the weight of surfacing markets. The need for governance reform in the IMF is not new. The issue for renewed governance in the IMF began to weaken when former managing editor left the IMF. The new managing editor agrees that there needs to be more governance reform in the IMF, but has remained focused on the credit crises and budget cuts, especially a 15 percent reduction in the number of IMF employees.

There has been some additional concern that if the IMF does not reform that it will no longer be relevant to the international financial market. The undersecretary for the international affairs in the US Treasury, David McCormick, believed that the IMF needed to update its mission, governance, and financial model to be more successful. McCormick believes that exchange rates issues should be at the top of the agenda. If the IMF fails to fulfill such duties, all work done by the IMF may be questioned.

Another main responsibility of the IMF is to uphold financial stability. In order to uphold financial stability, the IMF needs to be able to predict a financial crisis. Some are skeptical on this matter. The IMF has attempted to set up structures that can face financial crisis independently. In order for this to take place, the financial market has to be able to overcome risks and losses during such a crisis. The “Group of Seven” strongest economies are now recognizing the importance of the IMF’s role, which has an international membership beyond the strongest and most stable economies.

FOR DISCUSSION:

Do the Group of Seven need to collectively put pressure on the IMF to see any change take place? What specific changes need to be met to reach the expectations of the IMF’s members?