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IMF Redefining Its Relationship with Asia

Pedestrian precinct in Hong Kong SAR: extensive financial sector reforms have helped Asia withstand pressures from global crisis (photo: Ed Jones/AFP)

ASIA AND THE IMF

IMF Redefining Its Relationship with Asia

IMF Survey online

July 8, 2010

  • Better representation key to continued IMF legitimacy
  • IMF finding new ways to work with Asia
  • Listening to Asia's needs

The IMF’s efforts to a forge a stronger, more collaborative partnership with Asia shift into top gear in the next two weeks, with a series of events in the region.

Tensions in IMF-Asia relations emerged during the Asian financial crisis a decade ago, and the widening gap between the region’s economic size and its representation in the institution has been another strain.

The IMF is committed at the highest levels—reflected in recent remarks by IMF Managing Director Dominique Strauss-Kahn—“to rebuild, to renew the [IMF’s] relationship with the region”.

A high-level conference—co-hosted by the IMF and government of Korea—next week in Daejeon, Korea will address this issue head on, with conference sessions dedicated to Asia and the IMF, and Growing Asian Integration and Global Governance. The conference is part of a more concerted effort by the Fund “to take our engagement with Asia to the next level,” said IMF Asia and Pacific Department Director Anoop Singh.

Improving Asia’s representation

Referring to the need to overhaul the IMF’s governance structures, Strauss-Kahn has said that “increased effectiveness means increased legitimacy, and governance reforms are the key to unlocking legitimacy.”

Criticisms leveled at Fund governance have focused on the dominant role of industrialized countries, and the failure to keep pace with the rising economic power of emerging market economies, including many in Asia.

Asia is leading the global recovery and IMF estimates suggest it will become the largest economic region over the next two decades. Asia’s “leadership role in the current global crisis demonstrates the many improvements in the economic framework that have been put in place—and sustained—over the last decade,” said Singh. Extensive financial sector reforms in particular have helped the region withstand pressures from the global crisis.

Asia currently holds around 20 percent of the IMF’s voting power, but that figure is set to increase.

Building on quota and voice reforms agreed in April 2008, the IMF is working toward more sweeping reforms. “We are now committed to a quota shift of at least 5 percent, to give a greater voice to dynamic emerging markets and developing countries. This must be done by the January 2011 deadline, which in reality means by the G-20 summit in Seoul in November,” Strauss-Kahn said. He added that other aspects of IMF governance would also be addressed, including staff diversity and the management selection process.

Constructive engagement with Asia

Strauss-Kahn has acknowledged that IMF-Asia relations are “complicated because of the memories or stigma” of the Fund’s work during the Asian financial crisis, which was “very badly received by Asian countries.”

This was a painful period for countries—and people—in the region. Strauss-Kahn said that the Fund learned from reflecting on this experience. But, he thought it more important to look to the future, noting that the Fund’s response to the current global crisis reflects changes at the institution (including an awareness of the need to protect the most vulnerable and better tailor loan conditions to individual country circumstances).

Many at the IMF see the Korea conference as an opportunity to focus on the future and demonstrate that the Fund sees Asia as an equal partner. IMF Special Advisor Min Zhu said that “Asia plays an important role in the IMF, and the IMF also plays an important role in Asia.”

Zhu pointed to three main products the Fund has on offer—surveillance, capacity building, and training and knowledge—but highlighted the “rich knowledge of the global economic situation and the financial sector” as a key value added.

Echoing this point, Singh said that “one of the key challenges is to improve the understanding in Asia of the broadening range of the Fund’s work, such as through strengthening our emphasis on multilateral and regional surveillance, cross-border linkages, and spillovers, financial interconnectedness, and vulnerabilities”.

The IMF is keen to point out that it’s not just what it offers the region, but how it engages with the region. “We need to build our presence in Asia, reach out more across our stakeholders, and have a much more active engagement,” Singh said.

Taking conversation to region

The Fund has already taken steps to foster a more constructive dialogue with Asia, ranging from this week’s launch of the updated global economic and financial outlook in Hong Kong to appointing a new resident advisor in Fiji to monitor the needs of some of the institution’s smallest members. IMF country teams visiting the region are also reaching beyond official circles and stepping up public presentations.

As part of this new listening-mode, the Fund wants to understand what it can do better to support countries in Asia. Singh said that the Fund wants a “two-way partnership, where we benefit from the insights we get from policymakers, academics, and other experts in Asia”.

Strauss-Kahn sees this as an opportunity to find new ways for the Fund to work with Asian countries and regional institutions, including strengthening the global financial safety net to help guard against another financial crisis.

Next week's conference is part of the Fund’s concerted efforts to take the dialogue to the region and hear what Asia has to say. “One of the key objectives is to listen to Asian leaders in the public and private sector, and engage in an open discussion on the future of Asia, the prospects and challenges, and the implications for the rest of the world,” said Singh.