Who Needs the IMF? The organization is facing serious questions about its makeup, and its purpose.(international Monetary Fund)

Byline: Kenneth Rogoff

As the international Monetary Fund holds its big fall meetings in Singapore this week, it faces a financial world that has been turned on its head. Traditionally, the Fund has helped out bankrupt emerging-market governments using loan money collected mainly from Western nations. But now, the Fund is being asked, in effect, to play a much broader role in helping maintain financial stability in a world where the lenders and creditors are trading places. With the United States borrowing two thirds of global net savings and Euro-zone countries like Italy, Greece and Portugal struggling to control their government finances--while emerging markets sit on mounting foreign-exchange reserves--many worry that ground zero for the next big global financial crisis could be somewhere in the wealthy West. Given that Asia now accounts for almost 40 percent of global income, and an even larger share of its surpluses, it makes no sense that IMF voting rights and leadership posts are still dominated by the United States and Europe.

At immediate issue in Singapore is a relatively modest proposal by the Fund's managing director, Spaniard Rodrigo Rato, that would give slightly more voting power to China, South Korea, Turkey and Mexico. But this proposal is just a stalking horse for a larger reshuffling that would acknowledge the seismic shifts in global income that have taken place since the International Monetary Fund was founded after World War II. For an institution that pretends to reflect countries' relative economic influence, it is simply untenable to have China, with 15 percent of global income, own only 2.9 percent of the Fund's voting shares.

But attempts to reallocate power in global financial governance are meeting stiff resistance. True, the all-important United States stands firmly on the side of change, perhaps hoping that a more empowered Asia will feel obliged to take a less nationalistic approach to economic policy. Europe, however, is resisting fiercely, especially small, rich nations such as Belgium, the Netherlands, and the Nordic countries. They see their outsize role in the Fund--each controls more votes than China--as a key affirmation of their continuing relevance in a growing world. Curiously Asia, which ought to see the enhancement of its Fund voting shares as a milestone, is deeply ambivalent.

Many Asians, fueled by polemicists who seek to blame the Fund for the region's late 1990s financial crisis, remain deeply hostile to the IMF. Rather than seek deeper involvement in the organization, some Asian leaders are arguing for a regional alternative that would pool the trillions of dollars their economies have accumulated over the past ten years by running massive trade surpluses with the rest of the world.

Perhaps the biggest obstacle to reform are those who simply do not see the importance or urgency of revamping the IMF. Four years of rapid global growth have lulled many into thinking that the Fund is an anachronism, that nothing will ever go wrong. Sovereign debt markets, in particular, seem to have forgotten the spate of spectacular global debt crises that raced across the developing world only a short while ago. These include Mexico in 1994, South Korea, Indonesia and Thailand in 1997, Russia in 1998, and Brazil, Argentina and Turkey in the early 2000s. Each time, global financial stability stood on the brink, and each time the Fund helped orchestrate a global response, often pouring in billions of dollars in bridge loans out of its own resources.

Consider, for example, the Fund's risky and creative lending package to Brazil in August 2002, when markets were terrified that the impending election of leftist President Luiz InAcio Lula da Silva would induce Brazil to cast aside its newly stable macroeconomic policies. With market access suddenly freezing up and the country on the brink of default, the Fund stepped in with $30 billion. The Fund's ...