The IMF should be radically reformed and have a central place in the post-crisis global financial architecture, its former head Michel Camdessus last night told a high level panel advising on its future. The revamped institution should have access to more funds and be empowered to monitor capital markets as well as the current account, Camdessus proposed. Its role as lender of last resort should be formalized, and its ruling International Monetary and Finance Committee (IMFC) given executive, rather than advisory, powers. In an exclusive interview before the Eminent Persons’ Group meeting in Washington last night, Camdessus told Emerging Markets that the markets meltdown could prove to be a “blessing in disguise” if it stimulated deep-going reforms.
From the experience of the Asian crisis, “I know full well that if you are not able to start reforming right away, at the start of the crisis, then you will not reform at all”, he said. “The ministers have to take measures – each one in their own countries to establish confidence and liquidity and so on, but we must keep in mind the need for reform of the institution and of the system.” Camdessus, who headed the Fund from 1987 to 2000, made a flying visit to Washington from France to lay out his case and meet with current managing director Dominique Strauss-Kahn. “It is time to give to the IMF the mandate and jurisdiction to monitor the capital markets, as well as to monitor the current account”, he said. Only then would the Fund have the credibility needed “to introduce the minimum regulation needed to restore confidence”.
Camdessus suggested that the IMF’s Articles should be amended to give the IMFC, which comprises financed ministers and central bank governors from 24 emerging economies, formal decision-making powers rather than its current advisory role. “This would increase enormously the influence of the Fund.” Camdessus said it was “overdue” for the IMF’s financial resources to be increased in line with the growth of the global economy since it was founded 64 years ago. As an interim measure, the IMF’s General Agreement on Borrowing should be “reinvented” to enable countries such as China and South Korea to contribute to its resources. “We should also confirm the role of the IMF as lender of last resort.” In past crises the Fund took that role “without asking anybody whether or not we had the permission”. “If this crisis continues, liquidity fails to be re-established, and more countries have major problems, then we should not forget that the special drawing rights facility (SDRs) is there.” A large-scale SDR allocation “could help”. Camdessus suggested that the G7’s instruction to the IMF to “shrink itself”, before its future mandate had been decided, was ill-advised. Downsizing had “weakened” the Fund.
Camdessus said a “vacuum at the centre of the system” had helped generate the current crisis. “When you abandon half or more of the financial market to the greed and selfishness of banking operators with no other purpose than maximising profit then you can end of up with this kind of crisis. IMFC chairman Boutros Boutros Ghali told Emerging Markets last night that he would welcome discussion of Camdessus’s proposals. “The imperative is there to make the IMF the pre-eminent institution to address these kinds of problems. The problems are multilateral and they require a multilateral organisation to solve them.”