Nearly ten years on from the Asian financial crisis and the IMF has yet to find a workable solution to the need for a precautionary financing arrangement that helps middle-income countries prevent financial crisis. The IMF’s inability to articulate a plan to mitigate global economic risks will force countries to continue searching for ways to self-insure.
The IMF’s ability to dictate economic policy to member states is fraying because of lost credibility in the wake of its failures in East Asia, Argentina and Russia. Developing countries are now rejecting the Fund’s interference in their economies.
Gerald Epstein, professor of economics at the University of Massachusetts, finds that despite little evidence of the success of inflation targeting in promoting economic growth, employment creation or poverty reduction, the IMF is increasingly using loan conditions and technical assistance to push its use. There is an urgent need for viable alternatives that focus on employment generation, poverty reduction, export promotion and investment enhancement to be given more attention.
The IMF has defended itself in response to a civil society campaign in Nicaragua
After months of official wrangling and European stalling, proposals for changing IMF quotas, which determine financial contributions and voting power in the organisation, have coalesced around a small ad hoc increase for four countries, a commitment to make the quota formula more closely match economic realities and an increase in the basic vote
The United Kingdom's accountability systems for World Bank and IMF policy have scored successes and failures over the summer of 2006. A cross-party parliamentary enquiry into the role of the IMF produced a hard hitting report that called for substantial reform. However the ministry responsible for World Bank policy has been criticised over its energy and climate change policy, latest aid white paper and its response to the IFC safeguard policy.
The managing director's report on the medium-term strategic review released at the spring meetings was short on specific proposals for reform implementation and lacked commitments for improved democratic functioning or strengthened surveillance of large industrial countries.
The international financial system facilitates trillions of dollars of capital flight from developing and developed countries to onshore and offshore financial centres, with the active participation of banks and other financial institutions. The consequences are massive tax evasion, a resultant erosion of state budgets, and rising disrespect for the law. The relevant international organisations that, working together, can change this situation are the IMF, the OECD, and the UN.
A flurry of reviews of the BWIs work in financial sector reform kicked off in March with the Fund's board review of the joint Bank-Fund financial sector assessment programme.
In late October the G7 took limited steps to strengthen the international financial architecture, after the World Bank-IMF annual meetings ended with a plethora of proposals but no substantive agreement.