The International Monetary Fund is set to play a significantly enhanced role in promoting global economic growth and stability. In one of the important decisions taken at the Pittsburgh G20 summit, the IMF has been given the mandate to assist in a new mechanism for a peer review of every country’s economic policy framework and performance. Policies of many countries including India are already being reviewed by the IMF and after the G20 summit the policies of the richer countries’ policies will be subject to scrutiny. Of course, much will depend on how the IMF goes about fulfilling the mandate. But the decision at the summit is in itself a big step towards ensuring that the policies pursued by the G20 countries “are collectively consistent with more sustainable and balanced trajectories for the global economy.” In a related development, the IMF itself will be restructured and made more democratic so as to reflect the current global economic order rather than what prevailed in 1945 when it was set up. Its executive board will become more broad-based. The IMF’s system of quotas — from which the voting power of individual members is derived — will be realigned in such a way that developing countries including India and China, now having a 43 per cent share, get five per cent more. That, however, falls short of the 50 per cent share the developing countries have been asking for. But the G20 ought to be complimented for finally moving forward on a long-pending agenda of internal reform of the IMF and the World Bank.
The key question is whether the IMF will be able to alter the economic policies of countries that have directly or indirectly contributed to the global economic crisis. At Pittsburgh, there were few concrete suggestions for an orderly unwinding of “global imbalances” — the huge current account deficit of the United States matched by the current account surplus of China. It is not clear whether the IMF will be in a position to influence China’s exchange rate policy (leading to a revaluation of the yuan) or the U.S.’s inclination to consume. Obviously, continued global cooperation will be necessary even as the world economy climbs out of the recession. The IMF, which has forecast a gradual recovery, has gained in reputation by its generally deft handling of the crisis. For instance, it mobilised resources swiftly and stepped up lending to the countries in need, thereby containing the crisis. Even more significantly all the loans came without the onerous conditions and advice of the kind that showed a disregard for national sensibilities as it happened during the Asian crisis over a decade ago.