Why imf needs reform

On the whole, the IMF still emphasizes the free flow of capital as long as the extent of the flow does not exceed the financial capacity of a country, saying that once a country's capital flow exceeds its capacity, the IMF would be forced to regulate the capital flow, even impose capital control.

Which means countries can enjoy the benefits of the globalization of capital, but have to take measures to reduce its negative effects. The IMF has also helped stabilize globalization. For example, to minimize risks at the international and national levels, the IMF put forward policies and suggestions aimed at guaranteeing global financial and economic stability, so as to boost the movement of goods, services and capital among different countries. It has also issued reports to assess and analyze the potential financial risks and vulnerability of major economies.

Moreover, the IMF helps crisis-stricken countries recover and return to the growth track. For instance, it offers credit instruments which can provide financial support for member states, including standby credit facility, to balance their international payments in the short term, extended financing facility in the long run, and rapid financing instruments to meet the international payment demand.

It also offers precautionary financing to prevent and deal with economic crises. But the IMF faces challenges, too, because of the decline of multilateralism. But that the US has taken advantage of the bilateral currency swap agreement to maintain its financial stability suggests the US is now less interested in multilateralism in international financing.

With the US administration turning its back on multilateral mechanisms, the IMF's problems are likely to increase. To some extent, the IMF has encountered difficulties due to a lack of financial resources.

For example, its lending capacity has lowered, and as the new borrowing arrangement will expire by the end of , its financial resources could shrink to half their present size if a new arrangement is not put in place. Plus, the lack of financial resources will undermine the IMF's capacity to defend globalization. The delay in reform has weakened the IMF's governance structure. Emerging economies have become more important for global economic development.

Yet the IMF's governance structure is not fully adaptive to the new changes to promote global economic development, especially because there is a huge gap between the share of emerging markets in the world economy and their voting rights in global financial institutions such as the IMF and World Bank. The choice frequently is not between an adjustment package and its absence but between orderly and disorderly adjustment. Critics of IMF programs in Pakistan often tend to focus on the economic and social costs of an adjustment program but not on the costs of not adjusting at all.

The IMF has been criticized for not paying enough attention to minimizing the costs of adjustment and for doing too little too late on the supply side and the poverty alleviation issue. Whatever the merits of such a charge, it should also be recognized that the problem often lies with governments.

Authorities frequently tend to be more concerned with the costs imposed on the politically powerful than on the really poor. As a result, the pressure to lean on general lessons becomes harder to resist.

Some of these lessons are more contentious and less general than Stuart seems to suggest in his useful and stimulating paper. This paper is based in part on the work of International Monetary Fund staff involved in the ongoing review of the experience of countries with IMF-supported programs.

Views expressed in this paper are the sole responsibility of the author and do not necessarily reflect those of the IMF. For a discussion of the relationship between demand-oriented fiscal and structural measures, see Hernandez-Cata An exception is found in Khan and Knight The authors estimate a simple econometric model for developing countries to evaluate the effects of stabilization and structural reform measures. They conclude that once the influence of relevant policies on the growth rate is recognized, there is no clear presumption that IMF-supported adjustment programs adversely affect growth, even in the short run.

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Saudi Arabia. Syrian Arab Republic. Tajikistan, Republic of. United Arab Emirates. Although the IMF responded admirably to the global recession, it became clear that reforms are sorely needed to modernize the institution. Governance of the IMF is outdated, with outsized voting shares allocated to small European economies such as Luxembourg and the Netherlands, while minimal votes are allocated for large emerging market economies such as China, Brazil, and India.

When countries get more votes, their financial obligations increase too. Countries such as China, Brazil, and India are willing to take on more financial responsibility in international institutions, and the United States should actively encourage this burden sharing.

As emerging markets continue to grow in size and influence, they can and should take on increased roles and responsibilities commensurate with their economic power. This strengthens the international system and the ability of the United States to engage constructively with rising powers. The proposed reforms build upon a series of reforms from the George W. Bush administration to align IMF resources and governance with changes in the global economy. These reforms would increase the voting power—called quotas in the IMF—of developing and emerging market countries and reduce European voting power and representation.

At the same time, financial commitments and potential borrowing limits would change to correspond with the changes in voting shares. The reforms would not increase U. The proposed reforms leave U. More importantly, delaying reform weakens American credibility. The reforms were agreed upon internationally in , including by the United States, and all other major economies have subsequently endorsed them.

Currently, countries have already ratified the reforms, including major U. Together, these nations represent more than 76 percent of the voting shares in the IMF. To enter into force, however, the reforms require approval of 85 percent of IMF membership.