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UPDATED: April 27, 2009
Global Financial Crisis Underscores Need for IMF Reform
An issue was brought up again -- the reform of the international financial and monetary architecture
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As financial ministers and central bank governors from around the world gathered in Washington this weekend for two days of discussions on how to revive the slumping global economy, an issue was brought up again -- the reform of the international financial and monetary architecture.

"The IMF (International Monetary Fund) is being given a bigger role in the crisis. But it has hardly reformed," a press release from the Third World Network (TWN) said here on Saturday. The TWN is an independent non-profit international network of organizations and individuals involved in issues relating to development, Third World and North-South affairs.

Chinese Central Bank Governor Zhou Xiaochuan attends a meeting of the International Monetary and Financial Committee (IMFC) in Washington April 25, 2009. (Xinhua/Zhang Yan)

Chinese Central Bank Governor Zhou Xiaochuan attends a meeting of the International Monetary and Financial Committee (IMFC) in Washington April 25, 2009. (Xinhua/Zhang Yan)

The statement referred to the early April pledge by G20 leaders in London to boost support for the IMF, the World Bank and other international lending organizations by 1.1 trillion U.S. dollars to combat the global recession.

But the biggest chunk of that amount -- 500 billion U.S. dollars for an emergency lending facility at the IMF -- is still short of the goal, reports said.

"There is thus the danger that its policies will do more harm to developing countries," the press release said.

Meanwhile, IMF officials said: "Developing countries need more flexibility to choose the macroeconomic policies that will best create jobs, reduce poverty, and meet health and education goals."

LEADING EXPERTS IDENTIFY NEED FOR IMF POLICY REFORM

Dr. Robert Pollin, professor of economics and co-director of the political economy research institute at the University of Massachusetts-Amherst, said: "The overall impact of (the IMF's policy agenda) in developing countries is now clear -- it has led to slower economic growth, greater inequality, more speculative financial markets and severe bouts of financial instability."

"The priority now needs to be to supplant IMF-directed neoliberalism with policies focused on promoting economic growth, the expansion of decent employment and fighting poverty," he said.

U.S. Federal Reserve Chairman Ben Bernanke attends a meeting of the International Monetary and Financial Committee (IMFC) in Washington April 25, 2009. (Xinhua/Zhang Yan)

U.S. Federal Reserve Chairman Ben Bernanke attends a meeting of the International Monetary and Financial Committee (IMFC) in Washington April 25, 2009. (Xinhua/Zhang Yan)

Professor Georgia Saitoti, the Kenyan minister of state for provincial administration and internal security, said: "It is becoming more urgent now for additional resources to be mobilized in order to target critical sectors like education for effective mitigation of the HIV/AIDS epidemic."

"Unfortunately the strict macroeconomic policy encouraged by the IMF undermines the capacity of poor countries such as Kenya to fight the challenges and invest in health and education," said Saitoti, who was also former Kenyan minister of education. "The caps on overall national spending, enforced by the IMF policy, limit the hiring of additional teachers."

During the previous financial crises in the 1980s and 1990s, governments in developing countries were forced to cut spending on infrastructure projects and social programs, Robert Zoellick, the World Bank president, said on Friday.

The IMF board agreed to double the borrowing limits for 78 of the poorest countries in an effort to meet the needs of developing nations hit by the current economic downturn, the worst since the Great Depression.

"The developed world, including the Bretton Woods Institute, must remove the contradiction that exists between global targets for education for all and the restrictive policies," Saitoti said.

"There should be urgency, therefore, to relax the conditionalities and allocate more resources to the developing countries in order to enable them to effectively meet health and education needs," he said. "Africa has a lot of potential for contributing to the international development. Let us examine existing policies that limit its capacity to thrive."

Russia's Finance Minister Alexei Kudrin talks on a phone as he arrives at the International Monetary and Financial Committee (IMFC) meeting at IMF headquarters in Washington April 25, 2009.(Xinhua/Reuters)

Russia's Finance Minister Alexei Kudrin talks on a phone as he arrives at the International Monetary and Financial Committee (IMFC) meeting at IMF headquarters in Washington April 25, 2009.(Xinhua/Reuters)

PROPOSED AREAS FOR REFORM

The TWN listed key points on the reform of the international financial and monetary architecture, saying that to enhance the role of the IMF, the following reforms to the international fund should be undertaken:

-- The reform of governance and voting: significant and meaningful increases in voice and quota for developing countries on an expedited basis than the 2011 review agreed to in the G20 communiqué, issued in London early this month.

-- An end to undemocratic leadership: the head of the IMF should be selected on an open merit-based candidacy open to all member nationalities, as committed to in the G20 communiqué.

-- The reform of IMF staff: the staff of the IMF are mainly from one school of thought (neo liberal). A significant proportion of staff should be from other schools of thought.

-- Elimination of procyclical policy-based lending: the IMF's balance-payments loans should not come attached to policy conditionality that is contradictory and procyclical, constraining development objectives and needs.

-- Limited mandate of IMF: the IMF's role should be to provide liquidity in times of payments crisis. It should end its disastrous role in formulating and imposing policies involving trade, investment, privatization, sectoral policies, structural policies in the international financial field.

International Monetary Fund (IMF) Managing-director Dominique Strauss-Kahn speaks in a news conference during the spring IMF-World Bank meeting at Washington, the United States, April 25, 2009. (Xinhua/Zhang Yan)

International Monetary Fund (IMF) Managing-director Dominique Strauss-Kahn speaks in a news conference during the spring IMF-World Bank meeting at Washington, the United States, April 25, 2009. (Xinhua/Zhang Yan)

Although the importance of and the need for IMF reform is increasingly recognized in the wake of the current global financial crisis, various players do not agree on the program and focus of the reform, observers here said.

The IMF reform is a complicated and sensitive issue and it will not generate any major specific progress in this regard at the end of the two-day annual spring sessions of the IMF and the World Bank, which started on Saturday.

(Xinhua News Agency April 26, 2009)



 
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