Crisis averter, crisis lender, crisis manager: The IMF in search of a systemic role

Given its high profile in the wake of the East Asian financial crisis, it is worth recalling that some observers in the mid-1990s were suggesting that the IMF should be closed down. The essence of their argument was that in a world of flexible exchange rates and private international capital markets, an agency such as the Fund was no longer needed. With the demise of the Bretton Woods system, the Fund undoubtedly lost most of its original systemic role. While it continued to lend to individual countries encountering balance of payments difficulties, its systemic functions in terms of managing global exchange rates, co-ordinating macroeconomic policy, and seeking to ensure that the quantity of international reserves was adequate all but disappeared. Although initially the Third World debt crisis in the 1980s and then the fall of Communism and the transition of centrally planned economies to market-based systems in the early 1990s rekindled a systemic dimension to the Fund's operations, this was fairly transitory. By the time of its 50th anniversary in 1994, discussions of the Fund's systemic role had largely returned to the issues of global exchange rate regimes and international policy co-ordination; yet there was insufficient consensus on these issues to suggest that the Fund would regain a systemic role. The Mexican peso crisis hinted at global problems to come, but it was unclear just how common such crises would be. While it would be a mistake to expect too much of the IMF, the analysis in this paper suggests that there is a case for redefining its role and ensuring that it has both the appropriate organisational structure and the resources necessary to perform it.