## The Future of the IMF — Wolf

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### Major global changes affecting the IMF
- Shift in global economic power:
  - In 2000, advanced economies generated 57 percent of global output (PPP).
  - By 2024, IMF forecasts place the advanced-economies share at 37 percent.
  - China’s share will rise to 21 percent from 7 percent.
  - The rest of emerging Asia will account for 39 percent of global output.
  - The United States: 14 percent; European Union: 15 percent (as presented in Chart 1).
- Increase in great-power rivalry:
  - United States has labeled China a “strategic competitor.”
  - European Union calls China an “economic competitor in the pursuit of technological leadership.”
- Rise of populist politics and skepticism of technocratic expertise affecting domestic and international institutions, including the IMF.
- Slowdown or reversal of globalization:
  - Prior to the transatlantic financial crisis, world trade volume grew almost twice as fast as world output.
  - Currently, trade and output are growing at about the same rate (see Chart 2).
  - Emergence of outright protectionism in the United States.
- Technological change:
  - Internet and advances in artificial intelligence bring new vulnerabilities (cyberattacks) and massive labor-market shifts.
- Increase in financial fragility:
  - Ratio of debt to gross output has increased.
  - Debt has shifted from the private to the public sector and from advanced to emerging market economies (see Chart 3).
- Secular stagnation:
  - Weak demand signaled by low inflation and ultralow real and nominal interest rates; structural persistence implied.
- Rising salience of climate change with important effects on development strategies and macroeconomic policies, particularly in poorer and more vulnerable countries.

### IMF adaptation, learning, and expanded remit
- IMF has adapted historically; strengths include staff quality and competent management.
- Recognized past mistakes, including underestimating perils of financial liberalization despite warnings from Raghuram Rajan (IMF economic counsellor, 2003–2006).
- Post-transatlantic crisis adjustments:
  - Reevaluation of impact of government spending cuts and tax increases on growth.
  - Improved surveillance of financial risks via Global Financial Stability Report and World Economic Outlook and country work.
  - Recognition that liberalizing capital flows carries risks as well as benefits.
- Euro area crisis lessons:
  - Difficulties dealing with a central bank and countries the IMF could not control.
  - Worked with euro area institutions; programs had successes and shortcomings (notably Greece).
  - Reformed IMF lending framework for countries with high sovereign debt; ended exemptions from mandatory debt sustainability for systemic crises.
- Increased engagement with fragile states requiring imaginative approaches to political and institutional transformation.
- Expansion of IMF agenda beyond traditional macroeconomic stability to include:
  - Income and wealth inequality
  - Gender inequality
  - Corruption
  - Climate change
  - Noted vital results on fossil fuel subsidies and cost of corruption.

### Internal tasks and intellectual agenda
- Need to reconsider monetary, fiscal, and structural policies in context of:
  - Ultralow interest rates
  - Low inflation
  - Large debt overhangs
  - Secular stagnation
- Questions the IMF must engage deeply with:
  - Policy options for the next downturn.
  - Management of mass restructuring of private or sovereign debt.
  - Validity of unorthodox perspectives such as “modern monetary theory.”
  - Political economy of protectionism.
  - Impact of artificial intelligence.
- Institutional reforms and operations:
  - Produce work of highest intellectual quality and integrity, especially in surveillance.
  - Consider whether IMF needs more staff expertise in the politics of change and whether more staff should reside permanently in member countries.
  - A detailed review of the IMF’s way of working is recommended.

### Key structural and governance recommendations
- Reweight voting shares to align with economic importance:
  - Current vote shares cited: EU (including United Kingdom) 29.6 percent; United States 16.5 percent; Japan 6.2 percent; Canada 2.2 percent; China 6.1 percent; India 2.6 percent.
  - Argument that these figures are out of keeping with relative economic weight and should be reweighted, especially toward Asia.
  - Warning that otherwise China may establish its own IMF-like institution, as with the Asian Infrastructure Investment Bank and the New Development Bank.
- Increase IMF financial capacity:
  - Current lending capacity cited as just $1 trillion.
  - Global foreign exchange reserves cited as $11.4 trillion.
  - The disparity demonstrates inadequacy of IMF resources and perceived costliness of access.
  - Acknowledges moral hazard but argues for insurance/fire-brigade role analogous to central banks.
- Leadership selection reform:
  - The IMF’s top job should not be permanently left to a European.
  - Global institutions need the best global leaders chosen openly and transparently.
  - Candidates should be required to submit platforms for the future development of the institution.

### Overarching political constraint and conclusion
- The IMF is built on cooperation among member countries; that commitment is waning.
- IMF can prepare and adapt but cannot ensure global political will to cooperate.
- The Fund’s continued relevance depends on a world where dominant powers believe in professionalism, multilateralism, and cooperation.
- The IMF’s adaptability is a key strength, but it remains ultimately constrained by the political environment.

*Source: Martin Wolf, “The Future of the IMF,” Finance & Development, June 2019.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2019/june/the-future-of-the-imf-wolf.pdf_