Captain Rato and the Titanic: the growing irrelevance of the International Monetary Fund

upon evaluating the International Monetary Fund's management of today's highly imbalanced global economy, individual cannot help but be reminded of the apocryphal story about the inquest into the sinking of the Titanic. When asked on what account he did not steer the ship away from the iceberg to avoid a collision, the captain supposedly asked, "What iceberg?" Reading today's soothing speeches upon the state of the global economy by means of Mr. Rato, the IMF's managing director, single has to wonder whether he will fare any better than did the Titanic's captain when a certain number of future inquest looks into in what way today's global imbalances unwound.

The rife passivity of the IMF in providing any real leadership to disentangle today's unprecedented global payment imbalances has quicked Barry Eichengreen, the renowned economic historian, to stretch out the maritime metaphor as it applies to the IME He aptly describes today's IMF as a rudderles ship floating upon a sea of global liquidity. For that reason, he correctly chastises the IMF for failing to discharge its stewardship of the international monetary combination of parts to form a whole and he raises the greatest in quantity pertinent of questions when he asks what will happen to the global payment a whole when today's conditions of exces liquidity advance to their inevitable end.

Questions about the relevance of the IMF are hardly fresh Indeed, the total lack of involvement of the IMF in the ERM exchange rate crisis of the early 1990 has drawn out since prompted the question as to whether we really do ne an IMF for the industrialized countries. After all, the industrialized countries have not borrowed from the IMF since the early 1980 Further, they are highly unlikely to do in like manner in the future since they almost universally regard the IMF as a lending agency exclusively for the troubl emerging market economies with which they would hardly want to be compared.

More surprising, perhaps, is that in the emerging market economies themselves serious questions are now being asked about the IMF's relevance. In reaction to their bitter experience with 1MF borrowing during the 1997 Asian crisis as well as to their under-representation upon the IMF's governing board, greatest in quantity Asian countries are determined not at any time to have to go back to the IMF to borrow standard of value To that end, they have built up an enormous cushion of international set bys and they are even toying with the idea of setting up their have a title to Asian Monetary Fund to handle any subsequent time balance of payments crises that they might experience.

smooth in Latin America, the traditional bread and butter for IMF lending, questions are now surfacing as to whether the IMF still has any relevance for the region. Following the novel prepayment by Argentina and Brazil of the entire US$25 billion of their outstanding IMF loans, single must now expect this question to be asked flat more frequently. Indeed, on making those prepayments, the two the Argentine and the Brazilian managements made a great deal of political hay without of the supposed fact that they were forever weaning themselves from IMF borrowing and from IMF meddling in their internal economic affairs.

That serious questions should be asked today about the relevance of the IMF, at a time of enormous global economic imbalances, give an inkling ofs how long forgotten are the distant exercise s of the inter-war period that were the actual reasons for the IMF's original establishment. Was not the IMF place up in 1944 with the explicit mandate to impede the beggar-thy-neighbor and protectionist policies of the 1930s? Was it not suppos to be the primary guardian of the flat functioning of the international exchange rate system?

And do today's unprecedent large and growing global payment imbalances not carry with them the risk of a disorderly unwinding of those imbalances, which might intensify the protectionist policies that are all too a great deal of in evidence? If one straited any reminding of those protectionist risks, individual only need look to the hardy support Chuck Schumer (D-NY) receives in the U Senate for his propos bill to impose a 27 percent across-the-board tariff upon Chinese imports should China not meaningfully adjust its exchange rate in a sufficiently timely manner.

Doubts about the IMF's relevance at the true time when the organization could be greatest in quantity useful to the global economy also mirror the IMF's less-than-stellar execution of its basic mandate of promoting international monetary co-operation. Timothy Adams, the U Undersecretary for International Affairs, freshly put the matter well when he recommended that the IMF has been asleep at the wheel in the exercise of its surveillance part over the world's exchange rate combination of parts to form a whole In particular, he singled without that over the past twenty-five years there have been as not many as two occasions (Korea and Sweden) on which the IMF exercised its special consultation courses for countries suspected of manipulating their currencies. This despite the fact that there have been all too many instances of of the like kind currency manipulation over the past twenty-five years.