IMF Managing Director Rodrigo de Rato yesterday went on the offensive against critics of the Fund and his stewardship, and accused 'major economic powers' of not fully considering the impact of their policies on the global economy.
'Reports of the death of the IMF are greatly exaggerated,' said de Rato at an Institute for International Economics (IIE) seminar where he vigorously defended the Fund's record.
US Under Secretary of State Tim Adams, speaking at the same seminar, attacked the IMF for taking too tame an approach on exchange rates. The perception that 'the IMF is asleep at the wheel' on exchange rate surveillance is 'very unhealthy,' he said.
De Rato was also criticized by Morris Goldstein, an IIE economist, for suggesting earlier this week that the issue of exchange rate 'manipulation' is not a problem.
De Rato countered that it is not the IMF's job to dictate to China, but to convince it that a more liberal exchange rate regime is 'in its own interest.' The Fund 'cannot enforce the rules of international monetary behaviour,' he insisted. No more could it dictate to the US Congress what action it might take in order to help correct global financial imbalances, he suggested.
'It is the prerogative of every country to have home-grown policies,' said de Rato.
The IMF's role is to advise and persuade, and not to behave like a 'world government,' de Rato insisted. It should not try to 'duplicate the G7' but instead provide a 'voice' for all of its 184 member countries on issues of global importance. However, de Rato acknowledged that that voice is not representative of the global family of nations at present, because of anomalies in its shareholding structure.
'On this point, I agree with critics of the Fund,' he said. 'Our legitimacy is impaired if we are perceived to be frozen in a world that reflects the realities of 50 years ago.'
Adams had argued earlier that representation on the IMF Executive Board should be tilted against Europe. Representation should be adjusted to 'better reflect the IMF's full membership' and 'consolidation of European chairs would help,' Adams suggested.
The Treasury official argued for a 'voluntary re-balancing of quotas' so that countries are represented in proportion to their economic weight. The US, which has a 17% quota although its GDP was 29% of the global total, will not seek an increase, he said. Nor would it press for the poorest countries, who are mostly overweight, to take a cut, he said.
De Rato responded that there is general acceptance that anomalies exist, but a solution is not yet in sight. The issue of representation 'goes to the heart of our ability to persuade members' to adopt policies, he said.
Randy Henning of the IIE argued that the IMF should have a strong role in regional monetary arrangements such as Asia's Chiang Mai Initiative in Asia, the American Framework Facility and the suggested Latin America monetary fund.
But de Rato implied that the IMF could not exert influence unless representation is improved.