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Working Paper 08-11

On What Terms Is the IMF Worth Funding?

by Edwin M. Truman, Peterson Institute for International Economics

December 16, 2008

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Edwin M. Truman At the beginning of the century the International Monetary Fund (IMF) faced crises of legitimacy, relevance, and budgetary finance. The IMF is now confronted by what likely will be the worst global recession since World War II, potentially huge demand for financial assistance out of its limited resources, and calls for it to play a more central role in the international financial and regulatory system. At the same time, the incoming Obama administration must decide what to do about the modest package of IMF reforms that was completed in the spring of 2008. The package requires US congressional approval to go into effect.

Edwin M. Truman reviews the recent, slow progress on IMF reform and makes recommendations to the Obama administration against the background of that record, the emerging global recession, and continuing financial turmoil. He recommends that the IMF package be reopened to include a doubling of IMF quotas and an amendment that would permit the Fund to swap special drawing rights (SDR) with major central banks to finance its short-term lending facility. He further recommends a special, one-time allocation of 50 billion SDR. If these proposals are turned down by the G-20 at its meeting in April, the Obama administration should seek congressional approval of the IMF package as it now stands because a failure to do so would seriously undermine the Fund as a central multilateral institution.


RELATED LINKS

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Policy Brief 13-7: The Congress Should Support IMF Governance Reform to Help Stabilize the World Economy March 2013

Book: A Strategy for IMF Reform February 2006

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Policy Brief 10-29: Strengthening IMF Surveillance: A Comprehensive Proposal December 2010

Working Paper 10-14: Reform of the Global Financial Architecture October 2010

Testimony: The Role of the International Monetary Fund and Federal Reserve in the Stabilization of Europe May 20, 2010

Op-ed: How the Fund Can Help Save the World Economy March 5, 2009

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Policy Brief 07-1: The IMF Quota Formula: Linchpin of Fund Reform February 2007

Op-ed: The IMF Should Heed This Resignation July 25, 2012