March 17, 2006

To the Editor, Toronto Globe and Mail:

Barrie McKenna cannot understand that the International Monetary Fund is happy not to lend ("Note to IMF: Looming Irrelevance Means It's Time To Fish Or Cut Bait", March 14). Why? Because when nations aren't borrowing from the IMF, it is good news: They are not facing a crisis. Moreover, the fact that nations aren't borrowing does not affect the fund's ability to lend in the future, as Mr. McKenna thinks. Our lending comes from the resources provided by our member countries, not from the income derived from previous loans.

Mr. McKenna also doesn't seem to grasp what the IMF does in area of crisis prevention. Since the crises of the late 1990s, we have worked closely with our member countries to help reduce the recurrence of such devastating economic downturns. Doesn't the long period of stability enjoyed by the international community suggest that we just may just be doing something right? These policy initiatives may be "bland" to a newspaper columnist, but that doesn't mean they are unimportant for the world economy.

That's also true of the reform effort currently underway at the IMF. Reform does not come in headline-grabbing ideas that have little chance of being turned into action. They come from detailed analysis, careful planning and the consensus-building that Mr. McKenna derides.

We believe the result will be a stronger and more prosperous global economy. If that also involves radical change, that's fine. But if the conclusion is that greater stability will be grounded in "incremental reforms," then I guess Mr. McKenna will just have to find his excitement elsewhere.

Very truly yours,

Thomas C. Dawson

Director

External Relations Department

McKenna´s article, available at http://www.globeadvisor.com/servlet/ArticleNews/story/gam/20060314/IBWORLD14

Tuesday, March 14, 2006

Note to IMF: Looming irrelevance means it's time to fish or cut bait

BARRIE McKENNA

WASHINGTON -- Nearly a decade after a flu-like Asian currency panic infected the global economy, the International Monetary Fund is still grappling with the problem of financial shocks.

Fast-growing Asia didn't wait for a vaccine from the IMF. China and other countries simply built up massive foreign currency reserves as self-insurance, bypassing the world's lender of last resort altogether.

In Latin America, the IMF's biggest customers -- Brazil and Argentina -- have said no thanks to the fund's advice and have fully repaid billions of dollars in loans.

That's the way it is these days for the IMF -- an institution so plodding that even its staunchest defenders now concede it's in danger of becoming irrelevant.

Last September, when IMF members met in Washington for its twice-yearly meetings, world oil markets were in turmoil. The fear was of another energy shock. The fund's monetary and financial committee, made up of the world's top central bankers and finance ministers, suggested that better statistics was the answer.

It also offered this typically tepid solution: "Oil producers, oil consumers, and oil companies will all have their part to play in working together to promote greater stability in the oil market."

Not much has come of even that bland suggestion, nor many of the other issues discussed at that autumn meeting. And here we are a month away from the IMF's annual spring meetings, also in Washington.

For more than a year now, the IMF and its Spanish managing director, Rodrigo de Rato, have pushed an internal strategic review of its mission and operations. Sadly, not much has come of the effort.

The voices of disenchantment and impatience are growing louder. Tolerance for blandness, sluggishness and insignificance is wearing thin -- at least among some IMF members.

Last week, Bank of Canada deputy governor Tiff Macklem called on the IMF to become more "legitimate" by giving greater voice (and votes) to Asian countries.

"The IMF needs to operate with clear objectives, effective market-based tools to achieve those objectives, and a governance framework that supports sound decision making and accountability," he told a conference in Philadelphia on globalization.

"It is clear that important aspects of the fund's governance arrangements have not kept with changes in the global economy."

Mr. Macklem stopped short of embracing the Bush administration's view that the IMF should become a global currency cop, aggressively punishing China for keeping its currency undervalued. But he agreed the fund must "play a more active role in establishing the rules of the game, clear rules that support a market-based international monetary order." That should include playing the role of broker in such currency grievances, he said.

In February, Bank of England governor Mervyn King, a former finance professor, complained that one of the reasons that the IMF never gets anything done is a lack of candour within its walls. He quipped that "rigorous truth-telling" was never a feature of the countless meetings he's attended over the years.

Even with the brightest economic minds at its disposal, the IMF operates in a shady world of backroom politics and diplomacy, where countries vet virtually everything ever said about them. Concerns are soft-peddled and dissent is suppressed.

The IMF must radically change, Mr. King argued, or "slip into obscurity." He too favours more votes and a greater voice for Asia. He also wants to overhaul the fund's executive board -- which routinely micro-manages the work of top IMF officials -- so that they can do their job free of political interference.

Amid all the chatter, the IMF's portfolio of loans is steadily shrinking. Outstanding loans have been cut by more than half to roughly $40-billion (U.S.) from $90-billion two years ago. The IMF insists that's a good thing -- a sign that the global economy is doing better and that troubled countries don't need its help.

Maybe so. But it also means the IMF is generating less income to make new loans down the road. And key players, such as Brazil and Argentina, are increasingly alienated.

IMF officials have promised that the subject of reform will be high on the agenda of next week's meetings.

So far, Mr. de Rato is playing it safe. He's been trying to build consensus around a batch of incremental reforms.

That virtually assures that reform will remain on the agenda in September, again in April and September of next year, and perhaps for years to come.

Most disturbing is that the likelihood is high that nothing at all will be done by the time the next financial crisis hits.

And so while the global economy groans under the weight of growing imbalances, the IMF dithers, and waits.