The Administration’s IMF Proposal

INTRODUCTION

Following its discussions and tentative agreements with the major industrialized and developing countries at April’s G-20 meeting, the administration is requesting $108 billion in new funding and increased authority for the International Monetary Fund [IMF]. The request has been attached to an unrelated emergency war supplemental bill and appears to be on a fast track through Congress despite the important policy implications of the package.

The funding request comes at a time when the IMF stands at a crossroad as an institution. The international financial institution, created more than a half century ago in an era of fixed exchange rates, traditionally has focused on macroeconomic issues and international monetary stability. Its core mission was making loans to member countries experiencing short-term balance of payment difficulties, thus providing an important measure of stability in the international financial system. The IMF’s traditional lending reached a historical low point just a few years ago, however, and it has been trying to adapt its focus, mission, and lending practices to the 21st century international financial landscape. In recent years, it has come to focus more on microeconomic and structural issues, which has sometimes blurred the lines between its activities and those of the development banks, namely the World Bank. But as its name implies, the IMF is a monetary authority, not a development agency, and it has clearly strayed from its original mission. The legislation currently before Congress would promote further “mission creep” at the Fund rather than maintaining its focus on macroeconomic policy.

This latest international financial crisis has seemingly given the IMF a new lease on life and a renewed sense of relevance. But the Fund’s mission in the international financial system is still far from certain. Some key IMF members have suggested the institution should assume the role of global financial regulator, with powers to intervene directly in the domestic economies of member countries such as the United States. Countries such as China and Russia have recently said the IMF should become a global central bank and its currency, a synthetic composite of major global currencies, should one day supplant the dollar as the world’s reserve currency. These moves would conflict sharply with U.S. national economic interests. Before the Congress grants the IMF an increase in funding and authority, it should have a clear sense of what role the institution will play in the world economy, and how its mission and actions may affect the U.S.

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