Reforms for Major New Roles of the International Monetary Fund? the IMF Post--G-20 Summit (Global Insights) (Group of 20) (Report‪)‬

For much of 2008, the International Monetary Fund (IMF) looked moribund. The Fund's only loans outstanding were costly ones to low-income countries (LICs). For the first time ever, the Fund had cut staff (by about 13 percent) but still faced a $300 million deficit over the next four years. No new customers were in sight. Former customers among the emerging market economies were self-insuring, all to avoid future dealings with the Fund. In April, the IMF's executive board had approved a minor reform of the formula for allocating quota shares, and hence voice and vote, among its members. Under-represented countries would receive some additional shares; tripling of base votes ensured that low-income countries would not lose shares. The two African constituencies would each gain a second alternate executive director to ease workloads. The reform package also proposed selling a portion of IMF gold, the profits of which would constitute an endowment to cover future administrative costs. The final step would be approval by member states' parliaments whose laws required such action--hence the power of the US Congress with its power of the purse making it genuinely independent of the executive. (1) The main question heading toward 2009 would continue to be whether or not the IMF was worth rescuing: Did it have a major role in the crisis of the global system? Should Congress approve the "reform" package? On 15 November 2008, however, the Fund became a phoenix. The G-20 summit, led by the European Union, assigned it new roles along with substantial new funding. The summit's Action Plan referred to the IMF in two sections. Under "Enhancing Sound Regulation, Regulatory Regimes, Immediate Actions by March 31, 2009," the G-20 called for a single action: "The IMF, expanded FSF [Financial Stability Forum], and other regulators and bodies should develop recommendations to mitigate pro-cyclicality, including the review of how valuation and leverage, bank capital, executive compensation, and provisioning practices may exacerbate cyclical trends." (2)