Raghuram Rajan: The IMF needs governance reform to retain its relevance
Subscribe to enjoy similar stories. The world needs an effective International Monetary Fund (IMF). Countries have become hugely indebted after the covid pandemic, and the risk of new shocks grows as the world warms and new pathogens emerge.
Protectionism (sometimes cloaked by security interests) is on the rise, impeding traditional pathways to development. As economies falter, no one wants to absorb the desperate people who are braving dense jungles or climbing onto rickety and overcrowded boats in search of decent livelihoods. We need an honest broker to help countries negotiate fair rules for international exchange (including, most immediately, rules on subsidies), to call out violators, criticize bad policies and step in as lender of last resort for those in distress.
Unfortunately, the IMF, despite the high quality of its management and staff, is increasingly ill-placed to perform these tasks. The IMF’s problems lie in its anachronistic governance. Most key decisions, including on country loans, are made by the Fund’s executive board, where G7 members hold most of the power.
The US wields a de facto veto, and Japan’s voting power exceeds that of China, whose economy dwarfs Japan’s. India’s vote share is far smaller than the UK’s or France’s, even though the Indian economy is larger and growing faster than both. Because the world’s erstwhile dominant powers refuse to let go, the under-representation of fast-growing emerging economies persists.
At the same time, it is no longer clear that the old powers always have the global interest at heart. In the immediate post-war era, the US, as the sole economic superpower, could be trusted to enforce the rules of the game and generally remain above the fray. But as its
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