A Keynesian Vacancy The IMF Can't Fill
Jeremy Hetherington-Gore Unleashed
09 November, 2008
Today there is no comparable figure, and we witness pigmy political figures running around like so many headless chickens without a clue as to how to restructure the system now that it has run into trouble.
'More regulation', they bleat, and reach for Keynes's IMF as a cowboy reaches for his six-gun. In fact the IMF is one of the first things they should be getting rid of.
The IMF and its advisory sibling the OECD are the standard-bearers of economic orthodoxy. But it is arguable that the IMF, whose primary stated purpose under Keynes's rules was exchange rate management, not economic management, lost its way after the system of fixed exchange rates broke down under the weight of economic forces in the 1970s.
The IMF's own (modernized) 'mission statement' is: 'The IMF is an organization of 184 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.'
Paradoxically, the nation states which fund the IMF probably see it as actively helpful towards their individual economic well-being; whereas the reality is that it forms part of a developing global carapace of regulation whose clutches individual member states are no longer able to escape. From this aspect, the crucial work of the IMF is standard-setting, an activity shared by all of the 'multilaterals', including also the World Bank and the Basle Committee on Banking Supervision on a fiduciary level and the OECD in fiscal affairs, to mention just the most prominent of global economic standard-setting bodies.
The IMF has also given its name to a Code of Conduct that emerged from persistent sovereign debt crises: The Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets. This was formulated in 2004 between the representatives of emerging market countries and private sector creditors.
In the popular mind, though, the IMF is seen as the world's fireman, running to the assistance of individual countries that get themselves into trouble and stiffening their fiscal moral fibre. The future of the IMF in this role, which has largely been taken over by the markets, is problematic, and it may not survive the first half of the 21st century as an independent institution. It has played a useful part in helping the development of sound fiscal regimes in many 1st, 2nd and 3rd world countries, but its task is nearly done.
The solution to today's problems will not come about by thickening the regulatory exo-skeleton of the world economy in some top-down kind of way, it will come about by strengthening the bones and sinews of the financial markets, and encouraging the markets to police themselves according to an agreed set of global guidelines.
As for the IMF, let's give it to the World Trade Organization and make it responsible for agreeing those guidelines between nations. It's high time that trade in money joined goods and services under a unified regime, to prevent such nonsenses as Brazil's transaction taxes.
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