Abstract
This short essay analyses the evolution of three key aspects of the International Monetary Fund in response to the Global Financial Crisis: (a) the adequacy of its own resources; (b) the shift of representation towards emerging and developing countries; (c) the review of the lending instruments. With respect to each of these topics, we describe the main policy choices which have characterised the past few years and provide our own assessment about them. Our main policy recommendations attain to: (a) the opportunity of preserving the overall size of the Global Financial Safety Net and in particular the role of the IMF; (b) the opportunity of dealing with the legitimacy problem arising from the strong underrepresentation of China at the IMF; (c) the opportunity of a very careful scrutiny for any new lending instrument.
The views expressed in this study are those of the authors and do not involve the responsibility of the Bank of Italy. The authors would like to thank Marco Committeri for his comments. The authors are responsible for any error. This study was finalised on 21 September 2016.
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Notes
- 1.
More precisely, in the last quarter of 2012, bilateral loan agreements for a total amount equivalent to about SDR 153 billion were signed by Italy, Japan, Saudi Arabia, Germany, Norway, Denmark, China, the Netherlands. Other 27 agreements were signed in 2013, 2014 and 2016 for a total amount equivalent to about SDR 130 billion.
- 2.
The CMIM is multilateral currency swap arrangement aimed to provide regional short term liquidity, to address balance of payments difficulties and supplementing existing international arrangements. Member countries are: Brunei, Cambodia, Hong Kong, Indonesia, Japan, Laos, Malaysia, Myanmar, the People’s Republic of China, Philippines, Singapore, South Korea, Thailand, Vietnam. It is usually classified among the RFAs, not among the central bank bilateral swap arrangements.
- 3.
Balassone and Committeri (2015) argue that the interpretation of how binding is the request of an active financial involvement of the Fund is not fully clear; a renegotiation of the Treaty may be necessary to make clear this point.
- 4.
The share of voting power does not coincide perfectly with the quota share because of the presence of basic votes, which are the same for all members. The voting power of any country results from the sum of basic votes plus one additional vote for each 100,000 SDR in quotas. Basic votes, therefore, help strengthening the relative voting power of those members with the smallest quotas (IMF 2015a).
- 5.
Ad hoc quota allocations, by allocating quota increases only to a small set of countries, may result into significant shift into quota shares even in a context where the overall increase of quotas is limited. By contrast, general review of quotas, which usually allocate most of the quota increases to all members in accordance with the quota formula, may result into a smaller shift in quota shares unless the overall increase of quotas is very large.
- 6.
More precisely, in 2009 the IMF created the Precautionary Credit Line (PCL) which evolved into the Precautionary and Liquidity Line (PLL) 2 years later. The main difference between the current PLL and the former PCL is that the PLL allows members with actual balance of payments needs to request an arrangement.
- 7.
The nine criteria are: a sustainable external position; a capital account position dominated by private flows; a track record of steady sovereign access to international capital markets at favourable terms; a good reserve position when the arrangement is requested on a precautionary basis; sound public finance, including a sustainable public debt position determined by a rigorous and systemic debt sustainability analysis; low and stable inflation; absence of bank solvency problems; effective financial sector supervision; data transparency and integrity (IMF 2014c).
- 8.
The five qualification areas are: external position and market access; fiscal policy; monetary policy; financial sector soundness and supervision; data adequacy.
- 9.
The Fund (2014c) pointed to the employment of a structural Bayesian vector autoregression (BVAR) estimation to calculate the weights in the computation of the external stress index of a set of external variables which would signal the risk of balance of payments crisis. The external variables taken into account would be country-specific (e.g. exports to the United States and FDI from the United States in the case of Mexico).
- 10.
Recently, the IMF (2016b) made use of the external economic stress index in the process which led to the approval of a 2-year FCL for Mexico. The main message conveyed by this index was that external conditions could deteriorate rapidly if some risks (e.g. an U.S. growth rate 1.5 percentage points lower than projected) materialize. Furthermore, the comparison of the projections of the external economic stress index formulated in November 2014 with those formulated in April 2016 highlighted an increase of the vulnerability to external shocks.
- 11.
It is telling that the main user of FCL is Mexico, a medium-size economy which is not part of any large RFA.
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Parigi, G., Paternò, F. (2017). The Evolution of the International Monetary Fund in Response to the Global Financial Crisis. In: Sciso, E. (eds) Accountability, Transparency and Democracy in the Functioning of Bretton Woods Institutions. Springer, Cham. https://doi.org/10.1007/978-3-319-57855-2_2
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