A reinvigorated IMF Managing Director Rodrigo de Rato yesterday set out his vision of a more relevant and representative IMF and showed that he is not afraid of confrontation with the Fund's most powerful members, by urging them to put their economic houses in order.
De Rato's speech to IMF and World Bank governors suggested that has taken criticisms of his management style to heart, and is taking a much more hands-on approach.
The Fund's new mandate must lie partly in 'helping countries to come to grips with globalization', he declared. But before it can do that, the IMF itself needs to understand the process.
The IMF also needs to reaffirm its 'perceived legitimacy' in the global order, by 'adequately representing countries of growing global importance,' de Rato insisted. These priorities drew applause from Japanese finance minister Sadakazu Tanigaki, among others.
Following his robust defence on Friday against US charges that the IMF has been 'soft' on China, de Rato turned the tables and attacked aspects of the Bush administration's management of the worldÕs largest economy.
'The US part of the equation on global imbalances - reducing the fiscal and current account deficits - is particularly urgent,' de Rato declared. He also castigated Europe and Japan for contributing to global imbalances.
The US administration's plans to reduce its fiscal deficit are welcome, he said. But even before Hurricanes Katrina and Rita struck the US, the Òunprecedented cuts in non-defence discretionary spending that it requires would have been difficult to achieve,' De Rato argued. He urged the US to take actions on the revenue side, 'preferably through reforms to broaden and simplify the tax base, in order to cut the global stability-threatening deficit'.
De Rato stole the limelight from World Bank president Paul Wolfowitz, who had been expected to lay out a bold new agenda for the Bank in his maiden speech to governors but who in fact delivered a low-key address. The IMF Managing Director drew on the strategic review of the FundÕs mission which he commissioned a year ago to validate a new vision for the future.
'A prerequisite for giving advice is that we understand all the issues fully ourselves,' de Rato said. 'I would like the Fund to focus more on the effects of globalization. To do this, we will need to reorganize our work, sharpening our understanding of financial sector issues and capital markets.'
The IMF must also improve its monitoring of countries' vulnerability to crises and consider again its role in financing commitments in crisis prevention.' he said.
'Another area where we need to act is on reform of IMF quotas and representation. The Funds ability to persuade our members to adopt wise policies depends not only on the quality of our analysis but also on the Fund's perceived legitimacy,' he said.
'And, our legitimacy suffers if we do not adequately represent coun tries of growing economic importance. This means, in particular, increases in voting power for some of the emrging market economies, especially in Asia,' he added.