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The
annual spring meeting of the IMF and the World Bank which
took place during the last week of April 2006 in Washington
went almost unnoticed. There were times when these meetings
received wide media coverage. But of late, such events have
become a mere ritual with their very purpose being questioned.
However, one important and unanimous acknowledgement that
came out of the April 2006 meeting wasthe urgent need for
reforming IMF.
During
the 1970s and 80s, developing countries, one after the other,
followed more or less a similar pattern: Get into desperate
economic situation, and after everything else fails, call
on the deep pockets of IMF for help. The Fund spent all its
life dashing from one country to another to put off the financial
conflagrations. But the sirens have been silent for quite
sometime now, resulting in sinking of both the Fund's budget
and its staff's morale. Once hailed as the savior of the world
economy, the Fund itself is in trouble now. Questions about
its relevance in the changed environment are being raised
more frequently from all corners of the world.
Like
any other financing institution, IMF too depends on the interest
payments from its customers (the countries that avail of loans)
to run its operations. But its biggest customers have now
become self-sufficient. For instance, Brazil and Argentina
both have repaid their debts in advance. The volume
of loans has been falling over the years and it seems increasingly
unlikely that the developing countries will seek the Fund's
help in near future. In addition, many of the developing countries
have started building their own reserves. South Korea, for
example, has built a war chest of $217 bn. China has recently
overtaken Japan to become the world's largest foreign exchange
holder with reserves amounting $820 bn. The only significant
debtors at present are Turkey and Indonesia but their scale
is too small to support the Fund's survival. Observers say
the present operating model is no longer tenable for IMF.
Over the next three years, the Fund expects to operate in
red with the budget deficit expected to touch $300 mn by 2009. |
