Insuring Against Instability: United States and the future of the International Monetary Fund
The International Monetary Fund (IMF), only a few years ago fading into obscurity in the thriving world economy, made a comeback during the 2008-2009 crisis. The G-20 re-tasked the Fund and tripled its lending capacity. Notwithstanding its new windfall and duties, the Fund’s legitimacy and effectiveness are in doubt. The main challenges center on disagreements between the Western European nations and emerging markets over the Fund’s governance and focus, a specter of disintegration of the global crisis management architecture by way of bilateral and regional financial arrangements (particularly in Asia), and limitations to the Fund’s responsiveness to major crises.
Yet the threat of global financial instability persists, and the Fund is uniquely qualified to counter it. The United States, the Fund’s founder and main shareholder, has sponsored sound reforms to the Fund in the context of the G-20. However, farther-reaching paradigmatic changes are required for the Fund to effectively manage global economic instability in the 21st century: focusing the Fund’s analytical powers squarely on systemic risks and largest economies rather than on small, developing nations; turning the Fund from a crisis firefighter into a global preventive care unit that rewards members for sound policies; and making the Fund a bridge between public and private insurance markets.