The World's Lender Must Redefine its Role to Stay Relevant
A commentary by Rodrigo de Rato, Managing Director
International Monetary Fund
Financial Times
September 14, 2005

Globalisation has brought enormous benefits in growth and efficiency. Yet this same force has brought cross-border financial crises and heightened the imperative to bring into the mainstream those who are being left behind.

Shortly after becoming International Monetary Fund managing director in 2004, I initiated a strategic review aimed at determining whether the fund is fully prepared to meet the challenges and crises of today and the future. When the review is released next week it will call for adjustments that will give greater focus to the fund's work and ensure the IMF can help all member countries face the challenge of integrating into the global economy.

The review suggests that some of the IMF's activities be scaled back, specifically through: streamlined work on standards and codes and financial sector assessments, a more focused approach to its role in low income countries, closer collaboration with the World Bank and spending less time on procedures and documentation. The new proposals also include an effort to deepen the analysis of globalisation, to broaden our research into the dynamics of capital account liberalisation and assess how best to achieve the UN Millennium Development Goals.

Redefining the fund's mission is inseparable from reassessing IMF governance. The fund's legitimacy as a global organisation rests on fair representation for all members. The current allocation of quotas - capital shares in the IMF on which voting rights are based - puts this legitimacy at risk in many regions, including in Africa, where the fund is heavily engaged, and in Asia, whose place in the world economy has grown far more than its role in the fund. The issue touches on the interests of many stakeholders but it must be addressed. The reallocation of quotas is not a zero sum game if it results in an IMF with widely held legitimacy and ownership.

Over the past decade the fund has been pulled in new directions: devising and overseeing complex crisis prevention initiatives, contributing to the effort to combat the financing of terrorism and money laundering, and playing a role in poverty-reduction strategies. This accretion of new mandates occurred as old mandates remained unchanged. But many of the initiatives of the past decade have evolved into diffuse, resource-intensive operations.

The strategic review aims at preparing for key, yet unpredictable, challenges. The fund has already taken the lead in calling for concerted action to address global current account imbalances. In future, the nature of the imbalances may change but the IMF must stand ready to help its members anticipate them and respond quickly.

Thus, work analysing and advising on global trends and developments in individual countries must be strengthened and reoriented. More resources will be devoted to global and regional issues, even as our regular country work is refocused on the most pressing macroeconomic issues. More attention will be paid to the cross-border implications of country policies and long-term trends such as ageing and energy demand. Country work will be more closely aligned with analysis of capital markets and financial systems. Even greater progress on transparency is essential, not least for the promotion of strong institutions in all countries.

The IMF's lending has to take account of the evolving needs of the membership. For the emerging market countries, there is an unmet demand for insurance against large and volatile capital flows; this will require careful examination by the whole international community. Meanwhile, the needs of low income countries are becoming more differentiated: some require debt relief, others concessional financing, and others just policy advice and support. More must be done to meet these needs effectively. However, the IMF's work in low income countries is overloaded with procedures that absorb substantial resources yet yield questionable gains. This work must be streamlined to ensure the needs of poverty reduction are met.

The IMF's mandate has evolved considerably since it was set up after the second world war and the great depression. This evolution has been guided by the needs of an international community committed to multilateral co-operation. As we address the challenges of our rapidly globalising world, change is essential if the fund is to remain relevant. There are difficult choices to make but with the commitment of our membership it should be possible to agree on a common vision. The IMF stands ready to remain an adviser and a close partner with member countries.