Beyond the IMF
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The purpose of this paper is to examine the governmental and market mechanisms that are being developed in the world financial community as ways to complement and substitute for the gap created by IMF deficiencies. This review has two objectives in mind. The first amounts to a stock-taking: an assessment of what defenses, in addition to a weakened IMF, are in place to prevent and to deal with financial turbulence. The second objective is more pro-active; the discovery of non-IMF, alternative defenses against instability would provide a basis for measures and policies that could reduce the risk and costs of instability, independently of IMF reform. The paper reviews the core IMF functions - crisis resolution, exchange rate management, financial policy coordination and surveillance - and finds examples of non-IMF organizational arrangements in all cases. However, the paper focuses in particular on the insurance role of the Fund and argues that developing countries are developing alternative insurance mechanisms, from a higher level of reserves to regional co-insurance facilities to remittances as a counter-cyclical source of foreign exchange. The de facto exit of its clientele, driven by the combination of high political costs associated with Fund borrowing and growing availability of alternatives, now poses an unprecedented challenge for the Fund, in particular pressures on its income. Given the close link between exit and the Fund’s high borrowing costs, linked in turn to its high administrative expenses, the paper also examines the options available to the Fund if it is to reverse its loss of clientele. In particular, in addition to governance reform, the Fund’s future seems to require significant cuts in its administrative budget, using budget savings to lower borrower interest rates. We conclude with an assessment of the systemic implications – stability and possible deflationary bias – of a continuing non-reformed IMF accompanied by a continuing move towards non-IMF arrangements.