INTERNATIONAL MONETARY FUND (IMF) @ 80 : CASE FOR REFORM

 United Nations Monetary and Financial Conference held at Bretton Woods, New Hampshire in July with 44 countries established both IMF and International Bank for Reconstruction and Development (Popularly known as World Bank).Even though both J.M.Keynes and Harry D White proposals were discussed in the conference instead of veteran economist Keynesian more constructive proposal due to  US vested interest White's proposals largely prevailed in shaping the IMF. The IMF was established to promote international  economic,monetary and financial cooperation among its members,to facilitate the expansion and balanced growth of world trade,promote exchange rate stability, ;to assist the establishment of a multilateral payment system and  to provide adequate safeguards to debt distressed economies .IMF should be instrumental towards such policies that support fair international trade and exchange of  goods and services and capital movements. For smooth  movements of global trade flows with efficient working of World Trade Organisation (WTO) especially backed by strong Dispute Settlement system it can obviously complement each other for successful  functioning of IMF. Since eighty years has passed after establishment it is  time to make a brief evaluation of its functioning. 

We have observed that IMF has been adopting policies and programs as per the evolving challenges of member countries. Challenges ranged  from volatile commodity prices in the  1960s ,oil price shocks in 1970s and periodic banking or financial crisis in late 1990s and 2000s.IMF created Buffer stock Financing Facility(BSFF) in 1969 for financing commodity buffer stock by member countries .Other major facilities offered were Extended Fund Facility ((EFF)Supplementary Financing Facility (SFF) Structural Adjustment Facility (SAF)Enhanced Structural Adjustment Facility (Enhanced Structural Adjustment Facility  (ESAF) and Contingency Credit Line (CCL) etc.During oil crisis between 1973-77 IMF had estimated that the foreign debt of 100 oil importing developing countries increased by 150%.Even though encouraging policy measures were adopted like the oil facility funded by exporting nations and other lenders  to poorer nations suffering from acute foreign trade deficit,the outcome was not encouraging. The debt crisis in 1980s and transition from Centrally planned economies in 1990s posed great challenges to IMF. As the measure to tackle debt crisis IMF provided lending tool kit to focus on growth,poverty reduction and debt relief on outstanding obligations for low income economies in the mid 1990s. IMF has played a decisive role in the transition process oof erstwhile Soviet block countries from centrally planned economies to market driven economies. Emerging market financial crises that occurred during the period 1995-2002 had necessitated IMF to  increase its exchange rate and financial sector surveillance, debt sustainability and sectoral balance sheet analysis etc.  Further during the global financial crisis (2008-14) IMF enhanced its  lending, streamlined conditionality,helped countries to manage voltatility in capital flows.It also provided series of bailouts (rescue  packages)for most affected economies to avoid default and issued Special Drawing Rights (SDRs) worth of $284 billion.During Covid19 pandemic (2020-22) IMF facilitated  prompt and unprecedented emergency financing by suspending debt service payments from  poorest members. Moreover $ 650 billion SDRS were channeled with the assistance of wealthier members to the most deserving countries. During both global financial crisis and Covid pandemic many  countries were forced to borrow massively to assist their people and institutions to survive. However increasing barriers to trade and investment in member countries has adversely impacted to hamper the opportunity gap between aging industrial countries and  young developing countries. 

Apart from the issue of Special Drawing Rights(SDRs) the Fund has been helping the developing countries in their balance of Payments and other problems through  facilities like CFF,BSFF,EFF,SFF,SAF,ESAF CCFf etc.In 2016 for the first time four emerging BRICS economies namely Brazil, China, India and Russia were included among the 10 largest members of IMF. However the complaint about the under representation of countries in IMF especially outside Western alliance  still persisted.  IMF member quotas represent both their voting rights and the amount of their capital subscription payment to IMF. As per rule countries can borrow in  proportion to their quota. For instance Japan's quota is 6.47%,China 6.4%, despite the fact that Chinese economy is more than four times higher than Japan.Similarly India's quota is less than that of UK and France despite India has over taken both these economies. When global South account for half of global GDP and 80% of world population,voting shares must really reflect the scale of changes occurring in the balance of global economic influence of member countries. Other limitations raised against functioning of IMF include stringent conditionalities imposed on borrowing countries, exchange rate reforms,devaluation in earlier years,promoting free markets, lack of transparency and involvement etc.It is unfortunate that despite several decades of lending experience there is not much change in the notorious conditionalities imposed by Fund as witnessed by mass protests recently in Kenya in which atleast 30 people lost their lives in police firing when the IMF backed finance bill sought to raise  taxes of essential goods. Obviously it is a clear case of conditionality imposed by the multilateral lender on poor countries in return for loan assistance . Economists like Anne O Krueger in 2002 suggested the need for sovereign debt restructuring, Lawrence Summers and NK Singh observed that  high interest rates are the main culprit in crushing  debt distressed developing countries in general and half of the poorest economies which could not recover even to the pre pandemic level yet.According to Harold James security or political issues need to be solved hand in hand with economic and financial challenges. Most importantly given the growing distrust among the US, European union and China there should be a solid solution to reach a mutual agreement so as to provide IMF the operational insulation. Further in appointing Manging Director for  the IMF both merit and competitiveness of experts should be the basic criteria instead of appointing citizens from American or western origin without required credentials.In nutshell reforms can mainly focus on issue of SDRs, other lending instruments, addressing debt distress and providing safety nets to the extremely poor countries and also addressing governance issues. Lending instruments must  decouple lending from quota system. International financial institutions including IMF should reflect the economic and demographic realities of global South and geopolitical conditions in governance reforms. The issue of SDRs primarily should help low income countries by providing a financial safety net. High interest rates coupled with compounding debt service challenges calls the need for comprehensive debt financing program . In short IMF reform do require vital cooperation  and concerted effort among all the major stakeholders.