Since January the IMF has been working on the issuing of a first bond issue.  The bonds would be denominated in SDRs, with a maturity of 1 year and offered to Central Banks. Speculation has been rife for some time that the BRIC countries would be the principal purchasers of such bonds. The BRIC countries – Brazil, Russia, India and China met together just several days ago to work on possible terms of the bonds.  It is noteworthy that the BRICs again are seen as a self actualizing group and it appears that all are prepared to lend to the IMF in this way though it appears that the BRICs would prefer that their be a secondary market for the bonds to improve their liquidity.

While the BRIC targeting is noteworthy in and of itself, it would appear additionally that the bond issue is a means for the BRICs to contribute to nations in distress but also to avoid providing longer term commitments to the IMF.  Some, like Cornell’s Eswar Prasad, formerly the chief of the financial studies division in the research department of the IMF, see the bond issue as a means to put pressure on the IMF and leading members to increase the voting shares of countries Continue reading →

This week finance ministers are meeting at the International Monetary Fund (IMF) and the World Bank (WB).  In advance of the meeting the IMF release a Report yesterday that raised the total projected losses from the global financial crisis to banks and other financial institutions to $USD 4.05  trillion.  That’s a big number and few steps have been taken by the institutions to write down those amounts.

To date the IMF has loaned $55 billion to to countries such as Iceland, Ukraine, Hungary, Serbia, Romania, Belarus and Latvia. In a continuing effort to identify the impact on emerging countries in either the G5 or the N11 a November arrangement to loan funds to Pakistan was concluded.  Mexico has just concluded (March 24, 2009)  a flexible credit Continue reading →

CIGI Conferenc, Waterloo, Ontario June 9-10 2006

The “par value” exchange rate system designed in 1944 ended long ago, but the legacy of Bretton Woods persists in the International Monetary Fund, particularly in its core surveillance function. From the beginning, political struggle has shaped its evolution. Its trajectory, especially after 1973, signaled a continuing attempt by the Fund’s most powerful member-states to find the golden mean in a globalizing economy between binding monetary rules and unbridled national discretion. Principled intentions and ambiguous consequences have been its hallmarks, ever since a process of formal multilateral consultations on exchange rate matters gave it birth. That it remains the subject of tough criticism, sharp debate, and regular reform efforts, even as memories of the original rules and purposes of the par value system fade, suggests the endurance of the normative quest begun at Bretton Woods. As my friend David Andrews argues in a book we are working on, the “binding agent” at Bretton Woods was an “overriding commitment to the establishment, and later the maintenance, of a cooperative international monetary order consistent with two goals: a maximum degree of national policy autonomy and a massive expansion of international trade.” The experience of competitive currency depreciation during the inter-war period had left the strong impression that such an order entailed the development of consensual rules to guide the re-opening of national payments systems and an institutional mechanism to monitor those rules and encourage monetary cooperation. In the first section of the first article in the IMF’s founding document, its member states agreed “to promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration.” Upon this base developed what would become the core mandate and mission of the Fund.

Like an academic department comprised of tenured colleagues who do not necessarily all enjoy one another’s company but who soon come to realize that some minimal level of compromise is in their personal interest, the actual process of monetary collaboration in the Bretton Woods order depended on the existence, but not always the effectiveness, of an administrative entity. Like a department chair, the Fund’s own autonomy would be limited, both constitutionally and in evolving practice. It would, stand for certain principles. It would have privileged access to knowledge that could not always be fully shared. And it would have to be endowed with the legitimate authority to mediate and adjudicate, with the technical ability at best to forestall and at least to manage crises, and, in principle if not in always in practice, with the capacity to sanction. In a world of integrating markets and still-sovereign polities, the Fund’s delegated authority would have to be clear and universally applicable even if its actual power would remain ambiguous and variably applied. In this light, the historical discontinuity between what preceded the 1944 Bretton Woods agreement and subsequent practice remains sharp, sharper in a fundamental sense than the 1973 break in the par value exchange rate system.

Despite persistent external criticism concerning the scope, terms, and effectiveness of the Fund’s main role in the monetary system, member states have never moved to abolish it. To the contrary, formal reviews have been undertaken regularly since 1977, and the conclusion is nearly always the same: Fund surveillance remains central and should be enhanced and reformed.

Heightened attention both inside and outside the Fund has lately also been given to increasing the transparency of the surveillance process, heightening the candor of Fund advice, and (sometimes by the same critic in the same breath) encouraging humility among Fund management and staff. In truth, such ‘enhancements’ would typify the modest incrementalism that has characterized the evolution of Fund surveillance from the beginning. Member-states and critics always seem to want more from the Fund, what they mean by that is often contradictory, and no one is fully prepared to endow this or any other intergovernmental institution with the actual supranational power necessary to match the most ambitious aspirations for its legal authority.

Prominent voices have recently reiterated Keynes’ famous admonition that the Fund must be less in the business of banking and more in the business of “ruthless truth-telling,” that it had to become an “independent umpire” articulating and “policing” the “rules of the game.” Such advocacy is well-intended, even if ironic considering its source in key G7 central banks, but far from novel. The more serious challenge to Fund surveillance is the gathering erosion of normative solidarity represented by a proliferation of regional competitors and alternative forums with selective memberships and weak or non-existent secretariats.

After the emergence of the euro, European members understandably shifted their attention away from Washington toward Frankfurt, even as they demonstrated little interest in reducing their formal stakes in an IMF seeking ways to reform its internal governance. More recently, key East and Southeast Asian states indicated serious interest in constructing a regional system for voluntary consultations, technical assistance, and temporary financing. Parallel efforts in Africa and Latin America periodically gain and lose momentum. Ted Truman, in his new book on the subject, asks the key question: “Can the global monetary system function effectively with more than one set of understandings, conventions, and rules, for example about the trade-off between financing and adjustment or about the ultimate goals of capital account liberalization?”

At this moment, and hardly for the first time, the Fund seems to be going through an identity crisis. What should give us all pause to reflect is the following statement made last June at a BIS conference: “Under its rules, the IMF has responsibility for the exchange rate system and for preventing countries from using undervalued exchange rates to promote domestic employment objectives. Current policies in many Asian countries surely call for more effort by the IMF to enforce this rule. On the other hand, Asian countries are surely correct when they claim that the US national saving rate is a cause of imbalances. And US policymakers are correct when they claim that slow growth in Europe and Japan are part of the problem. Each is correct. That’s why a multilateral solution to put the world economy on a more stable path is both desirable and probably necessary.”

The speaker was none other than Allan Meltzer, the same conservative critic who wanted sharply to curtain the role of the

Fund just a few short years ago. The aspirations and the frustrations of Bretton Woods live on. QED.

Excerpted from: “IMF Surveillance and the Legacy of Bretton Woods,” in Bretton Woods Revisited, edited by David Andrews, under review.

– Louis Pauly, University of Toronto

This paper examines global governance through the lens of the World Trade Organization (WTO), the international organization at the centre of the trade regime. Whether the current Doha Round of multilateral trade negotiations succeeds or fails, when it is over many governments and observers will ask whether the round’s difficulties indicate a need for reforming the WTO, or putting it out of its misery. This paper will begin from a governance standpoint: does the world need the WTO? If the answer is yes, does the WTO we have, work? Is the WTO in its continuing operations relevant, or legitimate? Is the current organization the best way to structure future multilateral trade negotiations? This paper will not comment directly on whether the political economy of the trading system favours protectionism or further liberalization. Instead it asks whether the institutional design of the WTO is suitable for the tasks Members are likely to assign it. In the context of the “new multilateralism” addressed in other papers, it will evaluate the need and prospect for governance reform, starting with a critique of the Sutherland Report. Taking the Doha Round as a reference point, what do we learn about a) economic institutions in their own terms; and b) the changing role of old and new great powers within them? The focus is trade, but investment is considered in the context of the difficulties, which may have institutional design roots, of adding new issues to the WTO agenda. While centred on the WTO, the paper will consider the impact of the proliferation of regional and bilateral negotiations on trade governance.

Written by Robert Wolfe