Distinguishing Reality from Rhetoric
The global financial crisis of late 2008 and beyond has had numerous and far-reaching implications for a large range of micro, macro and international economic issues. One of them has involved a reassessment of the world’s premier international financial institution, the International Monetary Fund (IMF). Although the Fund had previously claimed that the challenges of globalization made it indispensable, by the beginning of 2008 some were arguing that it had in fact lost its importance. To them the IMF seemed to be increasingly irrelevant, as illustrated by its apparent inability to exert a discernible impact on global economic imbalances through its multilateral surveillance and consultations. Even its bilateral surveillance of emerging and low-income countries was losing significance, as some of these traditional users of IMF resources emigrated away from it. The largely benign global economic environment had allowed many of the IMF’s former client countries to build up their own holdings of international reserves and thereby to self-insure against future economic crises. By early 2008, the Fund had only a limited portfolio of outstanding loans. Even amongst poor countries there was a shift away from the IMF’s provision of direct financial assistance. At the beginning of 2008, the Fund’s outstanding credit was only about SDR 9 billion, in comparison to more than SDR 70 billion at the beginning of 2004. Consequently, the Fund’s adjustment role was also reduced, as it lacked the leverage to compel members to follow its advice on economic policy.
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