IMF reform reality: The US and China must cooperate, willy-nilly
In July 1944, exactly 80 years ago, representatives of 44 countries met in an obscure New Hampshire village to negotiate the Bretton Woods Agreement that established the International Monetary Fund (IMF). For many, reaching the ripe old age of 80 would be cause for celebration. For the IMF, the anniversary only highlights the urgency of reform.
Some necessary reforms are straightforward and widely agreed, raising the question of why they haven’t been adopted. First, the IMF should provide its members with regular annual allocations of its in-house financial instrument, special drawing rights (SDRs). This would provide an alternative to the US dollar as a source of global liquidity, while also addressing the problem of chronic global imbalances.
Second, the IMF needs to do better at organizing debt restructurings for low-income countries. Its latest attempt, the rather grandly named Common Framework for Debt Treatments, has fallen short. The Fund needs to push harder for cooperation from China’s government and financial institutions, which are unfamiliar with the responsibilities of a sovereign creditor.
It should support reforms to speed up restructurings and endorse initiatives to crack down on holdout creditors. In terms of its surveillance of countries’ policies, the IMF needs to address its perceived lack of even-handedness; whereas emerging and developing countries are held to demanding standards, high-income countries like the US are let off the hook. It needs to reinvigorate its analysis of the cross-border spillovers of large-country policies, a process the US has managed to squelch.
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