The IMF received its share of criticism over the past two weeks.
The IMF governance structure is dated. Europe is over-represented on the IMF board (and isn’t inclined to allow much change). Asia is under-represented. Countries guard their position on the board jealously. The difficulty getting agreement on a modest ad hoc quota increase (Brazil and India objected because they were not among the winners) doesn’t necessarily bode well for the next set of more ambitious changes.
The IMF remains strangely (given its original mandate) unwilling to criticize countries with inappropriate exchange rate pegs (its silence on Saudi Arabia’s peg is a case in point; the IMF only delivers criticism in its regional outlook); hopefully the G-7’s call for the IMF to update its guidelines for exchange rate surveillance will spur a bit of change.
The IMF’s advice on how to reduce the surpluses of the world’s big surplus countries and the deficit of the big deficit countries is generally unheeded. The US hasn’t shown any real commitment to balancing its budget over the economic cycle. China has let its real exchange rate depreciate this year, even as its trade surplus exploded — not that you would know about China’s growing surplus if you just read the IMF’s public reports.
For that matter, the markets — at least after June — don’t seem to share the IMF’s concern about imbalances. Market players are bidding up the currencies of countries with large current account deficits (New Zealand, Iceland, the US – v. at least against the yen), and pushing the currencies of countries with surpluses down (Japan).
The IMF isn’t – despite what some argue – outgunned by the private markets. At least not in the emerging world. The $25b the IMF provided to Turkey is far more than the international sovereign bond market ever supplied Turkey (once you net out the bonds held by turkey’s own banks, which are effectively a foreign-currency denominated domestic loan). But it is outgunned by the huge stockpiles of reserves held by many emerging markets. $200b and change in loanable funds isn’t what it used to be.
The IMF’s model for generating the income needed to pay its staff is in a bit of trouble. The IMF used to pay its staff out of interest in got from lending to the big emerging economies ….