Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Friday, September 01, 2006

Modernizing the IMF

Paul Blustein has a good article on changes at the IMF:

Fast-Growing Countries To Gain More Clout at IMF: By Paul Blustein: The International Monetary Fund took a first step yesterday toward retooling itself to reflect major changes in the global economy, agreeing to increase the power that several fast-growing countries have over its policies and promising to boost their clout more in the next two years.

The IMF's executive board, which represents its 184 member countries, approved a resolution that would modestly increase the voting power of China, South Korea, Mexico and Turkey immediately. The resolution, which still must be approved at the fund's annual meeting in Singapore on Sept. 19, also sets forth a plan to revamp the formula for determining voting shares by the 2008 annual meeting.

The vote change is the initial stage of a broader initiative aimed at refocusing the IMF's priorities and giving high-growth emerging countries, especially in Asia, a bigger say over its operations, commensurate with the size of their economies.

Known chiefly in the past decade as a financial firefighter that sought to rescue emerging countries stricken by crises, the IMF is being prodded -- in large part by the United States -- to be more active in addressing global trade imbalances and other problems that menace the world economy.

That role would presumably include confronting countries whose currency policies are contributing to the imbalances -- the most obvious example being China, which many economists criticize as keeping the value of the yuan too low and thus giving its manufacturers an unfair competitive advantage.

At the same time, the IMF is seeking to address complaints that the apportionment of individual countries' voting power has not changed in 30 years despite wide shifts in the relative size of their economies. For example, China's economy has grown to twice the size of those of Belgium and the Netherlands combined, yet Belgium and the Netherlands together have 1.5 times as many votes....

[T]he board decided to increase the overall number of votes immediately by 1.8 percent, with the extra voting power divided among China, South Korea, Mexico and Turkey -- four countries whose votes have particularly lagged behind their economic clout. A resolution adopted yesterday also committed the IMF to a second stage of changes -- one expected to increase those countries' votes further, along with a few other underrepresented countries, while decreasing the votes of countries such as Belgium....

And Dean Baker is (rightly) annoyed at the headline:

Beat the Press: The Washington Post Redefines "Fast": The Post has an article headlined "Fast-Growing Countries to Gain More Clout at IMF." The list of countries is China, South Korea, Turkey, and Mexico. The first three countries can reasonably be described as "fast-growing," but not Mexico. Mexico's per capita GDP growth has averaged just 1 percent annually for the last decade, a slow rate for any country, but an especially pathetic pace for a developing country. Whatever the reason Mexico is getting increased clout at the IMF, it has nothing to do with fast growth.

Eliminating the headline writers and letting reporters write their own headlines would, I think, produce significant improvement.

Is this a sign that Hank Paulson is being effective as Treasury Secretary? Perhaps.

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