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Imf unveils profound changes { March 2006 } Original Source Link: (May no longer be active)
http://news.independent.co.uk/business/news/article359844.ecehttp://news.independent.co.uk/business/news/article359844.ece
Brown unveils major IMF shake-up
By Philip Thornton, Economics Correspondent in Washington
Published: 24 April 2006
Gordon Brown unveiled the biggest reform of the International Monetary Fund in almost four decades at the weekend as countries across the globe faced up to the need to prevent financial instability from triggering a global recession.
The Chancellor, who chairs the IMF's policy committee, said the fund would institute a new surveillance system to highlight the impact one country's policies had on other nations and the global economy.
The move came at the end of a week that saw oil prices hit a new record, world trade talks move closer to collapse, and talks between the presidents of the United States and China end without any solid outcome.
It followed a stern warning by the IMF's economists that world leaders had only a small window of opportunity to tackle threats to the global economy from oil prices, the record US trade deficit and the rise in protectionism.
Speaking at the IMF's Washington headquarters on Saturday night, Mr Brown said the new strategy for the IMF, which was established 60 years ago at the post-war Bretton Woods conference, had won a consensus of all 184 country members.
"This is not simply the IMF accepting responsibility for multilateral surveillance. This is about individual economies of the world ... accepting that we have responsibilities to each other and that they have to be addressed."
He said it was a time of "profound change" thanks to globalisation and of risk from high and volatile oil prices and the dangers of protectionism. "Faced with this challenge members of the committee decided that 2006 would be a year of reform for the global economy and to make the IMF more fit for purpose and address the challenges that are quite different from 1945 when the IMF was created."
The medium-term strategy drawn up by the IMF's managing director, Rodrigo de Rato, and approved by the committee, will lead to a wholesale reform of the institution including; a new focus on surveillance of multilateral issues and the spillovers and linkages between countries or groups; greater independence of the IMF's surveillance work in exchange for more direct accountability; an ad hoc revision of voting shares to give representation to small countries; and the launch of a review of the whole voting structure of the IMF that could see China and other Asia nations vastly increase their voice at the world table at the expense of Europe.
Experts believe one of the first issues to be addressed will be links between record current deficits in the US, massive surpluses in Asia and oil-producing countries, and China's currency peg with the dollar.
Asked how this would work in practice, Mr de Rato said: "This is a system by which ... the authority of the fund and the consultation process are able to discuss and implement analysis and decisions with relevant countries related to spillover and linkages."
There was fresh evidence of a new attitude to global imbalances as China said it was adopting further measures to expand domestic demand, encourage consumption, open its markets and "improve" the exchange rate regime.
Zhou Xiaochuan, governor of the People's Bank of China said the reforms meant its currency could "probably" begin to appreciate a bit more quickly. "Chinese economic reform always follows the philosophy of gradualism (but) probably it can be a little bit faster."
Meanwhile, Mr de Rato said the IMFC had given him a clear mandate to propose changes to the voting shares of some countries, including some emerging market economies, by September. His proposal would give ad hoc increases to a small number of countries like China, South Korea and Mexico. Other nations that may also qualify include Malaysia, Thailand and Singapore, which will host the annual meetings in September where Mr de Rato said he would publish "concrete proposals".
This could be the most significant change to the IMF since 1971, when the Bretton Woods agreement that obliged countries to fix their exchange rates to gold was abandoned.
Observers noted last week marked the 60th anniversary of the death of John Maynard Keynes, the British economist seen as the architect of Bretton Woods.
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