Treasury Chief Says IMF Must "Reinvent Itself" To Stay Relevant
USINFO Special Correspondent
Washington - U.S. Treasury Secretary Henry Paulson has expanded his call for far-reaching reform of International Monetary Fund (IMF) policies and procedures, most critically in the area of foreign exchange surveillance.
"For the IMF to remain modern and relevant, it must reinvent itself," he said in a statement delivered in Washington April 14 at the spring meeting of the IMF and World Bank.
The Treasury chief urged adoption of rule changes that would enable the IMF to monitor and deal with countries' currency manipulations.
"For us, reform of the IMF's foreign exchange surveillance is the linchpin on which other reforms depend, and we look forward to action in this important area very soon after these meetings," Paulson said. He said that, beyond implementation of needed policy changes, “IMF staff must do a better job in addressing foreign exchange surveillance on a day-to-day basis."
The secretary called for "greater exchange rate flexibility in Asian emerging economies," singling out in particular China, whose exchange rate policies have helped produce massive trade surpluses with the United States and the rest of the world. "The counterpart to a falling U.S. trade deficit, by definition, is falling trade surpluses in other economies," he observed.
Paulson had addressed the same issue more briefly in a statement he issued April 13, just after a meeting of the Group of Seven (G7) finance ministers and central bankers that preceded the semiannual IMF-World Bank gathering. (See related article.)
While stressing the exchange rate issue, Paulson said the IMF's modernization process also must involve a complete overhaul of its structure of governance, with a greater role for developing nations.
"The fund no longer looks like the world economy in which we live," the secretary said, and "marginal reforms that do not fundamentally alter relative quota shares are insufficient - bold action is needed to boost the share of dynamic emerging market countries."
Noting that those emerging markets are producing an increasing share of global output and "will increasingly drive global growth," he said the United States supports protecting the shares of the poorest countries through an increase in basic votes - and, toward this end, would forgo an increase in IMF voting share it otherwise would receive.
Paulson's weekend push for IMF reform had been foreshadowed by comments made to reporters April 12 by Treasury Under Secretary Timothy Adams. (See related article.)
"We are reaching a critical time on reform of the IMF," Adams said, adding it was needed to safeguard the institution's "relevance and legitimacy." He also focused attention on China, saying that it must adopt a more flexible currency to sustain its own growth and that of the global economy.
BENEFITS OF FREE TRADE
Speaking before the World Bank's development committee April 15, Paulson stressed the importance - to poorer nations as well as to the developed world - of successfully completing global free-trade talks.
"The best way to alleviate poverty and raise living standards is through greater openness, so more people can benefit from the expanding global economy," he said in prepared remarks.
He observed that developing countries that had opened to trade had seen sharp reductions in poverty, citing notable growth in several Asian economies and in Mexico.
"We look forward to working closely with all our partners to achieve our common goal: to create the conditions and opportunities for the world's poor to improve their livelihoods and overcome poverty," Paulson said.
The Treasury chief stressed the need to "continue pushing forward on the trade agenda, including a successful Doha Round of negotiations, to keep all our economies growing." He termed the case for trade liberalization "clear and compelling," adding, "[I]f we want more people to support it, we need to ease anxieties and help more people realize the benefits of trade."
The talks formally are called the Doha Development Agenda because they were launched in Qatar’s capital of Doha in 2001. The negotiations aim to permit free trade between countries of varying prosperity. (See related article.)
HELP FOR SUB-SAHARAN AFRICA
Turning to the problems of sub-Saharan Africa, Paulson said U.S. officials are heartened by early indications that the World Bank's Africa Action Plan (AAP) is having success. "It is too early to determine the long-term effectiveness of the AAP, but there is sufficient evidence that results are moving in the right direction," he said.
He called for a shift in the plan, toward a greater focus on private-sector support and "improving financial sector access."
"It is the financial sector that provides a loan to start an enterprise, grow a business, or buy a house. Access to capital helps people acquire assets that give them a foothold in the economy - personal financial wherewithal they can leverage into greater prosperity and economic security," he said.
For more information on U.S. policies, see Global Development and Foreign Aid.