This article focuses on the main issues vital for the survival of the International Monetary Fund in the context of rapid and almost revolutionary changes in the world’s money and capital markets, the rise of fast growing, emerging economies, and the decline in the use of the institution’s resources and consequently in its income. It also discusses the structure of the IMF, the inadequacy of the instruments it currently employs and the new ones being contemplated as part of the Medium-Term Strategy it designed recently.

The occasion for this paper is a celebration of the life of the late Manu Shroff who played a significant role in articulating India’s approach to the IMF during his official career with the government of India. The article is based on the address delivered at the Manu Shroff Memorial Seminar held in Vadodara on Februrary 16, 2008 and organised by the Gujarat Economic Association. The author thanks without implicating Anand Chandavarkar, Devesh Kapur, Iqbal Zaidi, Esra Bennathan, Rattan Bhatia, M Finaish, for helpful comments on the earlier drafts.

Deena Khatkhate (dkhatkhate@aol.com), an independent scholar, lives in Chery Chase, Maryland, US.

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A clamour for IMF reform, persistent and vigorous, is not a new phenomenon. Over the past decade and more, there has been a spate of intellectual assaults on the IMF – its defined role, efficacy, and functioning, coming from leading economists, like A Meltzer (2000), M Feldstein (1998), J Bhagwati (1998), L Summers (2004), not to speak of ideological and populist disputations based on both rational and irrational argumentation. But the difference in criticism in recent years, particularly in the last couple of years, has been more fundamental inasmuch as it is directed at the very raison dêtre of the IMF, its assigned role, financial strength, its structure and governance. However, these debates, with a few exceptions, have generated more heat than light and have not addressed the nature of the new global order, which tended to change the very identity of the IMF.

This article focuses on the main issues vital for the survival of the IMF in the context of rapid and almost revolutionary changes in the world’s money and capital markets, the rise of fast growing emerging economies and the decline in the use of the IMF’s resources and consequently in its income. It also discusses the structure of the IMF, inadequacy of instruments it currently employs and the new ones being contemplated under several of the and the difficulties involved in reconciling them [Khatkhate 1987(b)]. A conflict arises when individual countries pursue policies with purely domestic objectives in view, which often have larger and unsettling impact on other countries and thereby on the stability of the international monetary system as happened during the interwar period of “beggar my neighbour”, exchange rate policies running amok. This clearly implies that internal stabilisation policies by themselves would not be able to overcome pressures on any country whose balance of payments departs from equilibrium in either direction as forcefully argued by Keynes (1980). This made it impe rative to ensure cooperation among countries through policy coordination so that the international monetary system proceeds smoothly towards stability.

The key currency system with fixed but adjustable exchange rates evolved with formation of the IMF in 1945 to resolve conflicts among the nation states. Whenever there was a fundamental disequilibrium in the balance of payments of any country, its exchange rate was adjusted in the desired direction along with other monetary and fiscal measures consistent with it. Any liquidity need under these arrangements was provided mainly by the US and only marginally by the IMF. In this way, the conflicting interests of countries were reconciled and maladjustments in policies among countries were avoided. This also ensured any possible incompatibility problem known as “the nth country (ie, key currency) problem”. Under the key currency regime characterised by fixed exchange rates, the non-nth countries’ central banks tried to maintain exchange rate parity with the key currency country’s US dollar, through adjustment in their balance of payments resulting in reserve flows into or out of the domestic money supply.

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In this kind of a situation, the nth country’s role was generally passive, while the other countries were recipients of reserves from the nth country according to their preference pattern. Generally, the exchange rate parities were maintained and adjusted in discrete stages under the surveillance of the IMF whenever the fundamental disequilibrium occurred. This was despite the fact that there was a lack of symmetry in surveillance with no effective sanction against the surplus countries unlike in the case of the deficit countries as envisaged by Keynes in his plan for the formation of the IMF, which provided a possible solution through introduction of a scarce currency clause in the Fund’s Articles of Association. A reason for the fixed exchange rate regime remaining immune from the shocks and the effective cooperation mediated by the IMF was perhaps the absence of many surplus countries until 1971 [Khatkhate 1987(a)].

The monetary system was rocked by major shocks in 1971 when the conflicts between the nth country and the non-nth countries were sharpened as the latter could not accept without resistance the inflationary repercussions of money supply expansion in the key currency country and the key currency country could not afford an uninterrupted deficit in its balance of payments without adversely affecting its domestic economy [Horne and Masson 1987]. As a result, the fixed exchange rate regime collapsed in 1971, to be replaced by one which combined elements of fixed exchange rate parities and floating exchange rates, not totally free but managed through frequent interventions. The hybrid system covered exchange rates fixed against individual or baskets of currencies, limited flexibility of exchange rates against a single currency or multiple currencies of the type represented by the European Monetary System (EMS).

Conflict with Floating Rates

A floating exchange rate regime spawned a conflict among industrial countries. The underlying assumption of the floating rate regime was that the countries would not be required to hold reserves and that each of them could determine its target of money supply and the rate of inflation. In reality, however, there had been a wide spectrum

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of countries with pegged currencies which made it necessary for them to focus on their current account balances, the level of their effective exchange rates and the foreign exchange reserves they desired to hold. It was thus imperative to ensure global compatibility in targets set by different countries unless the reserve currency country could refrain from any explicit target. Since, however, the US had its own target, it opened a gate to a dif ferent type of conflict among the industrial countries, which warranted sustained policy coordination among them [Khatkhate 1987(b)].

Under the floating rate regime, the Fund’s role changed radically but in a lopsided way. The countries with floating rates or managed exchange rates did not have to worry about maintaining official foreign exchange reserves and about having to borrow from the IMF in the event of payments difficulties. As a result, the membership of the IMF became dichotomous with non-borrowing and borrowing members and the IMF’s leverage was limited only to the latter. As far as the non-borrowing members were concerned, the IMF could influence their policies through multilateral surveillance with persuasion and voluntary compliance as its organising principles. The elimination of the IMF’s financing role in regard to the industrialised countries inevitably weakened its authority. Even the limited function of surveillance of macroeconomic policies of the major industrialised countries proved to be toothless.

The IMF was not a significant player in either the Plaza Agreement or the Louvre Accord, which crucially influenced policy coordination [Ahluwalia 2000]. What is more, even the nominal coordinating role assigned to the IMF was surreptitiously taken over by the surrogate bodies of the industrialised countries which incarnated as G-5, G-7, G-8, etc, aptly described by the late Joseph Gold, a former legal counsellor of the IMF as an “extraterritorial authority”. The sole reason for this was the aversion of the industrialised countries to the IMF getting involved in their internal policies [Khatkhate 2000]. The exclusion of policy coordination among the industrialised countries from the IMF’s deliberations and authority had a cataclysmic impact on stability in the international monetary system as evidenced by the turmoil in the world financial markets in mid-1980s with the debt problems of the Latin American countries in 1997, with the meltdown in east Asia and later Russia and Brazil [Khatkhate 1998(a), 1998(b)].

2 Changing Profile of Global Order

Several proposals regarding the IMF reform currently under consideration are underpinned by the economic and financial profile of the global order that is now on the wane. Hence they are narrow in scope and seem out of touch with the current reality with far-reaching structural changes in the global economy and finance which, in fact, accentuated the conflicts among countries, thereby making it even more difficult to resolve them than in the past. The old instruments used by the IMF to coordinate the policies of countries have to be retooled or even abandoned. More importantly, the IMF’s organisation and its outreach will have to be viewed in a new perspective which is realistic, less ambitious but more in tune with a vastly different global order.

A major change in the financial globalisation is brought about by new technology and financial innovations which revolutionised the financial intermediation process on a global scale, telescoping time and space in putting through financial transactions. There is a remarkable growth in derivatives of all types – interest rate, bank loans, etc. Though banks are involved as primary lenders, they reduce their risks through asset-backed securities, which have a market across borders. Repricing of credit is continuous and volatile. Hence the coordination of policies by countries acquires new urgency that requires the IMF to be proactive and well-informed. As M El-Erian, one of the practitioners in the international financial markets underlined,

…globalisation as a phenomenon is not new; also not new is globalisation’s transformation from an occurrence that affects the crossborder flow of goods and services to one that also accommodates significantly higher flows of capital to finance unusually large global payments imbalances. Rather what is new is the extent to which globalisation is supporting relatively rapid and fundamental realignment of economic and financial influence around the world, thereby altering the marginal price-setting dynamics for a range of variables and flows and in the process, changing the nature of systemic risk and effectiveness of traditional reaction functions [El-Erian 2006].

Another structural change is the emergence of new countries in Asia, particularly China. Their share in world trade, growth and capital flows has been increasing at a rapid pace and their domestic policies have wide and deepening impact on the economies of the industrial countries in Europe and the US. Some of them spearheaded by China have achieved current account surpluses of massive proportion and built up their foreign reserves held in US dollar denominated assets including treasuries, mortgagebacked securities and other corporates to the extent that they dictate the terms to the once powerful industrial countries in formulating their monetary and exchange rate policies. One of the drivers of their growth rates is the undervaluation of their currencies – here too China is a major player – a case for which is well-grounded in economic theory [Bhalla 2007].

Saving-Investment Gap

Though the industrial countries, particularly the US, are taking undervaluation of currencies of China and other Asian countries as the main cause of worsening global imbalances, the real problem lies elsewhere. The old paradigm was that disequilibrium

– stable or unstable in the international payments system – was caused by the misaligned exchange rates, nominal, real or the real effective. But it is now recognised that a more fundamental reason for the current global imbalances is the real factor such as the saving- investment gap in the reserve currency country, the US. A shortage of saving in relation to investment leads to higher interest rates which in turn cause large capital inflows which sustains the US current account deficit. If the US reduces or eliminates this savinginvestment gap, the degree of misalignment of the dollar exchange rate vis-a-vis major currencies will be reduced as a result [Dooley et al 2004; IMF 2007; Bernanke 2005; Yongding 2006]. If thus the global imbalances are the off-shoot of the real factors such as the saving gap in the dominant member country or countries, the remit of the IMF in managing the international monetary system through a sole reliance on the exchange rate adjustment will be severely constrained.

Until 2002, the IMF’s role in the international system was prominent only as a sort of lender of last resort to the borrowing developing countries. It could, through conditionality attached to the use of its resources, influence changes in the borrowing countries’ domestic policies and by extension in their external policies as well. Now this role is rapidly shrinking. The number of IMF programmes has declined from a peak of 70 in fiscal year 2000 to 40 by the end of 2007. Consequently, the total amount of IMF credit outstanding fell in March 2007 to SDR 11.9 billion from SDR 70 billion in 2000 [IMF 2007(b)]. In the foreseeable future, IMF credit will, in all probability, go down further. Its income has now shrivelled to 30 per cent of its admini strative expenditure and would, in all likelihood, slide further with a large borrowing country like Turkey which is piling up its foreign exchange reserves, ceasing to be a borrower. There will be few takers among the leading IMF stakeholders for its adopting measures to raise resources to tide over its existential crisis through other means as recommended by the specially appointed committee to study sustainable long-term financing of the IMF [IMF 2007(c)].

It is in such a conjuncture in which the IMF has found itself that its reform has to be conceptualised. Basically, its very existence is at stake and its health could be restored, if it could be shown that the IMF with a new strategy initiated by the International Monetary and Financial Committee (IMFC) and enunciated by the IMF Board, could effectively have its mandate carried out by the members who matter. It is clear that something more than mere retooling would be required if the IMF has to remain relevant in the new global economic and financial environment.

3 IMF’s Medium-Term Strategy

When the IMF is at the crossroads, it cannot stand still lest it be swept aside and if it moves, it does not necessarily guarantee that it would be in a right direction. Faced with this dilemma, the IMF has designed a new strategy, which makes “globalisation as its organising principle” [IMF 2005], as presented in Managing Director’s Report on the Fund’s Medium-Term Strategy (MTS). The key features of the MTS are: (a) make surveillance more effective; (b) adapt to new challenges and needs in different member countries; (c) help build institutions and capacity; (d) prioritise and rearrange work within a prudent medium-term budget; and (e) address the issue of fair quotas and voice.

In its essence, the new strategy, however, is a rehash of the old one in convoluted and some time confusing lingo. The central components of this strategy are three – one a replacement of the bilateral surveillance (BS) carried out since 1971 together with Article IV by new BS updated with a comprehensive policy framework. Under this, the scope of the BS is widened with a little deeper analysis of countries’ policies. The second covers, through multi lateral consultations (MC), issues of global or regional interests among the countries that are affected by them. The third is the intellectual discourse through its reports such as the World Economic Outlook (WEO), and Global Financial Stability Report (GFSR).

Of these, the first two, i e, BC and MC, are basically advisory and without any sanctions, if any advice emanating from them is ignored by the countries. The question is whether any of these moves by the IMF would make any difference in practice to cope with the challenges of the global order. The main objective of the MC, though not a new concept as it is bandied around, is to generate debate on issues of systemic importance such as “the consistency of exchange rate and macro economic policies with national and international stability”, “integrating macro economic and financial market analysis” and other allied Issues [IMF 2005]. In pursuance of this, the IMF carried out in 2006 a first MC with a select group of countries such as China, the Euro area, Japan and Saudi Arabia. During the MC there was of course an elaborate and intense debate on the misalignment of the exchange rates, particularly the undervaluation of Chinese yuan vis-à-vis the US dollar which is straining the trading relation of China with the US and the EU. There was also a detailed scrutiny

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of the US policies – fiscal, monetary and exchange rate and other domestic issues.

Focus on Global Imbalances

This MC with a particular focus on the global imbalances was heavily criticised because it was seen as “the IMF stepping into an area where it does not belong and identifying a problem that does not exist” [Eichengreen 2007]. It was not denied that national policies could have crossborder spillovers but these were considered of second order importance. The present international imbalances could just reflect, according to the critics, the optimising decisions of agents like desire for high savings in Asia, and attractiveness of investment in the US which need not necessarily pose any risks to the global economy. This debate proved to be contentious between the IMf on the one hand and the US and China on the other as the IMF insisted that the observed imbalances were due to the wrong fiscal policies of the US and the maintenance of the unsustainable exchange rate by China.

The MC would have its purpose served if the US and China had shown willingness to abide by the IMF’s findings and agreed to change their policy stances. But nothing of the sort happened. Instead, the US just acknowledged the desirability to change its fiscal policies but without any commitment to do so. China followed suit in regard to its exchange rate. China, however, has a better case for disregarding the IMF’s dictate because it could not have an appreciation of its exchange rate under current circumstances when it has a largely controlled capital account. It is not just that the China and US can ignore the IMF’s surveillance strictures. Ever since the defaults of Russia and Argentina and their subsequent rapid return to the international markets, the IMF’s reputational capital has substantially eroded. As a result, its surveillance edicts have little impact on international markets even with regard to the middle-income countries that have defaulted. The IMF’s new instrument to coordinate beneficial policy adjustments was thus blunted at the time of its creation.

IMF and US Brawl

Even more unsettling was the brawl that arose between the IMF and the US as a result of the finding in the bilateral BC of

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the US carried out contemporaneously with the MC. The IMF concluded in the BC that “it is the US dollar which is 10 to 30 per cent overvalued”, but the US Treasury faulted the IMF’s analysis and the methodology it used to determine the valuation of the US dollar [Swann 2007]. Recalling that the IMF was urged to be “a currency regulator” during the controversy between China and the western industrial countries at the insistence of the US, it is the US paradoxically which reneged on its commitment to the IMf becoming a currency regulator!

This episode of the US challenging the IMF’s calculations of its dollar exchange rate and the Chinese muted protest about the degree of undervaluation of the yuan reveals how formidable a task it is to arrive at a consensus on the equilibrium rates – nominal (NER), real (REE), real effective (REER) of the countries involved. J Williamson sets up an elaborate framework for calculating these exchange rates for currencies and argues that if a range is set for the rates in which the countries could vary them, it would constitute a better framework for the IMF’s “surveillance which has been a vacuous exercise up to now” [Williamson 2006]. However logical the Williamson’s schema sounds, it is utopian since it is difficult to have a consensus free from political judgment. What is supposed to be objective may turn out to be subjective and further more, it will be even bereft of any operational significance since the exchange rate maladjustment is a mirror image of the real economy imbalances in countries as discussed earlier.

The IMF today has all the pathologies of LDCs that it has tried to address all these decades. The mismatch between goals and abilities is the most glaring one. But as has been the case with almost all its programme clients the root of the problem is deeply entrenched in the IMF’s administrative budget. A severe administrative contraction is critical not just because of its reputational implications but also because it will impel the IMF and its shareholders to drastically readjust its goals and the means to realise them. The IMF should avoid a soft option of raising income through gold sale and investing the proceeds in the interest-bearing assets or asking countries with reserve position to forego claims on interest on it.

Fate of Second Plank

The same fate is likely to await the second plank of the IMF’s strategy, e g, the changing role of the IMf in the emerging market economies. The IMF proposes to have “candid and focused macroeconomic analysis with enhanced surveillance over financial and capital markets” as these countries have become major new “global players”. And all this is because the IMF expects implicitly that these countries may face macro economic crisis, which could only be avoided by the IMF’s angelic “enhanced surveillance”. This however is no more than wishful thinking on the IMF’s part. So far as these economies have pursued policies on their own which rewarded them with striking growth, price stability, stable external accounts and what is more, they have insured themselves against any systemic financial and economic crisis by accumulating huge foreign exchange reserves. One of the policies which these countries, particularly China and India, have consistently pursued is to maintain an undervalued exchange rates both nominal and real to promote growth regardless of the IMF’s advice to the contrary without being worse off [Bhalla 2007]. It is possible that some of these countries may face financial crisis in future that germinates disorderly decline in asset prices affecting financial institutions in an environment of asymmetric information. Even if this may lead to stabilising intervention by the IMF, the emerging countries will shy away from the financial assistance from the IMF like the industrial countries and resolve their problems on their own.

The IMFC has also suggested a change in the governance of the IMF through adjustment in the member-countries quotas so that non-industrial countries will have a greater voice in running the IMF. So far the IMF has adopted a two-stage process of quota and voice reform with initial ad hoc increases for the clearly underrepresented countries like China, Korea, Mexico, Turkey and more sweeping changes at the second stage. This is half-hearted and not even consistent reform without any coherent logical basis for quota adjustment. Mirakhor and Zaidi have argued that the IMF should follow a Rawlsian notion (named after philosopher John Rawls) that “Justice is the first virtue of social institutions” which will ensure “a distribution of voting power that participants accept as the end result of fair process” [Mirakhor and Zaidi 2006].

To expect the IMF, which is presently domi nated by the group of countries with commitment to their strong geopolitical interests to brace up to this principle seems a tall order. In the past, whenever the IMF management and its leading stakeholders promised to revise quotas to give greater voting power and voice to the emerging and other developing countries in the governance of the IMF, the result was doing the same thing over and over again and getting the same result, i e, enfeebling the voice of these countries. The battle for acquiring a voice for econo mically strong emerging markets in the IMF’s governance will be a long-drawn out affair and if at all, it reaches any culmination point, it would be that the countries denied a voice might embark on alternative arrangements such as regional monetary funds or other variants thereof to deal with the problems of regional payments imbalances.

All in all, therefore, the IMF’s new multilateral surveillance without any power to use sanctions, which Keynes considered to be a lynchpin of the successful inter national cooperation, described as “a series of ever more bland commu niqués and meaningless statements” [King 2006] will be a placebo to remedy the global imbalances.

4 Towards a Federal Monetary Fund?

The foregoing analysis of events and policies in the international arena forebodes a pessimistic scenario for the future of IMF. On the other hand, it promises a more radical, imaginative and constructive solution based on realpolitik, allowing for new trends in international finance and capital and alliances among the countries which were, until recently, under the hegemony of the industrialised countries. This would mean that the members of the IMF will have to hold equal status, more or less, in the deliberations of the IMF, if a consensus in its policies has to remain its centrepiece. Since such a denouement was denied for a long time, regionalism has sprung up as “defining feature of contemporary global politics and economics” [Katzenstein 2005], with formation of groups in Asia, Latin America, west Asia and even Africa with common interests in trade and finance.

This new dispensation has made it extremely difficult for the IMF as the leader of the global monetary system to apply one standard set of conventions, rules, and procedures to all the regions, particularly when the regions can pull greater weight [Henning 2005]. It seems that “globalisation is really regionalisation” and “trade and exchange rate policies are taking on an increasingly regional character, reflecting in part the fact that international trade has grown faster within the region than between regions” [Kapur and Webb 2007].

If this perception is correct and reflects new reality in international affairs, then an obvious solution is for the IMF to decentralise its organisation [Khatkhate 1987; Kapur and Webb 2007]. Instead of individual

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countries, the regions which will not overlap with each other should become the members of the IMF. This sort of federal structure of the IMF would remove effectively two infirmities of the IMF – one regarding its surveillance ineffectiveness and the other about unequal status of the membership. Under a federal fund, the regional unions like the European Union, Asian or Latin American unions can adapt a surveillance framework designed by the federal IMF within their respective regions with such changes as are necessary. Perhaps the IMf can do well in vesting, to begin with, the surveillance function in the regional units after the fashion of the US Federal Reserves which assigns surveillance of banks to its regional Feds. This is likely to be consensual in view of the convergence of their interests in trade, finance, investment and capital flows and the similarity of experiences in regard to monetary, fiscal and developmental policies in the past. The federal fund will then confine itself to focusing on those issues of coordination which have inter-regional implications [Khatkhate 1987(a) and (b)].

To fortify a plea for a federal IMF, Kapur and Webb cited the most pertinent case of Asian countries:

In the last few years, Asian countries have renewed efforts at establishing swap facilities between the regions central banks, to pool resources against a speculative attacks (under the so-called Chiang Mai Initiative), and efforts to develop a region-wide market for local currency bonds. If growing cooperation among central banks in the region (as exemplified by central bank swap facilities) leads to an Asian equivalent of General Agreement to Borrow (GAB), the Fund’s importance to the region will diminish for the same reason that it has all but disappeared in the industrialised countries” [Kapur and Webb 2007].

The counterpart of such arrangements in Latin America is Fondo Latinoamericana de Reserves (FLAR) [Eichengreen 2007].

If the IMF is federalised, its function would mainly centre on coordination to harmonise the relations among regions, to avoid deviation of regional surveillance from the central framework, and to supplement resources to the regions in the event of financial crisis. (The IMF has its own resources to the extent of $ 252 billion at present.) It can also through its research, as is done presently, have a global perspective of the international developments so that

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the regional groups can avoid segmented and subjective views of those developments.

Complex Issues

This is not, however, to ignore many complex problems – historical, political and technical that may arise in federalising the IMF. The EU is what it is after long battles were fought to resolve numerous political and national conflicts. The same sort of a situation will have to be confronted with by the regional blocks under the proposed arrangements. The technical dimensions relating to issues like voting power and its basis, membership profile of the regional as well as the federal executive boards, etc, are likely to be formidable. But these problems should not be deterrent to implementing a new vision of the IMF as they were not when the Bretton Woods twins were established. A new international monetary and financial conference like the Bretton Woods may well be lurking on the horizon.

The decentralisation of the organisation of the IMF is only one, though a major dimension of the reform; the other pertains to the need for the Fund to disengage from certain activities it has got involved over the years, through mission creep. The first among these is the long-term lending by the IMF in regard to which the experience is far from encouraging. The Meltzer Commission (2000) showed that four developing countries were indebted to the Fund for 40-49 years, 20 countries for 30-39 years, 46 for 20-29 years and 25 for 10-19 years. The long-term of the loans reveals that the economic problems of a large number of developing countries are endemic and of long-term nature and unless their political economy is drastically changed and the appropriate institutions are properly developed, no amount of the use of IMF resources will get them out of the quagmire. They are better transferred as borrowers to the World Bank.

Another function the IMF may well get rid of is the Poverty Reduction and Growth Facility (PRGF). Here the success achieved is minimal mainly because it requires for its success a solution to eliminate the structural rigidities in the developing countries. But the IMF is not organisationally equipped to resolve these issues nor has it the necessary wherewithal of technical skills [Khatkhate 2003]. As Jean Tirole (2002) emphasised, “too many objectives are conferred on the agency without the policy debate on the role of the IMF. These objectives create a lack of focus; furthermore, they are often conflicting. A multilateral institution, like any other organisation, should not be jack of all trades and master of none – multidimensional criteria bode no good economics, and a coherent analysis requires a clearly stated objective function.”

Result of Mission Creep

A paradox, however, is that the international bureaucracy has been shying away from the issues of disengagement of the Fund from the areas of only peripheral significance to its central role and in fact contributed to perpetuation of the “mission creep” in so many different ways. There was the 1989 Concordat on collaboration between the World Bank and the IMF but it came to naught except to add useless chores. There was another Committee on Bank-Fund Collaboration (2007) which having concluded that “…the World Bank’s net disbursements to sub-Saharan Africa in 2005 were $ 3.1 billion” in contrast to “…the estimates of private debt flows and net equity flows to the same region of $ 3.8 billion and $ 24.7 billion”, recommended more of the same, though the language was changed. The committee should have

– but did not – boldly held the bull by the horns and recommended a transfer of most of the IMF’s functions of microeconomic nature and in discharge of which the Fund has little expertise, to the World Bank. This would have drastically shrunk the IMF’s bloated bureaucracy and sharpened its focus on the real problems posed by globalisation. Instead, the committee’s prescription was like expanding the army after the war was already lost!

Thus, with both the decentralisation of the structure of the IMF, and its disengagement in activities not in consonance with its main objectives, its new vision of surveillance will be more effective in managing the global imbalances. It will be relatively easy for the Federal Fund to reach consensus among members, to improve governance with membership less unequal than before and to focus on its core functions in which it will have comparative advantages. The IMF could be then a leaner and yet a muscular institution without having to worry about falling income and its relevance in a new global order. Otherwise, the much debated IMF reform will only be a reprieve.

Some of the ideas about the IMF reform in this paper will no doubt seem to be esoteric and fanciful. However, what is said of melody can be equally said of the institutions that “The past can be there without being remembered and the future without being foreknown”.

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Gandhi Mandapam Road, Chennai - 600 025

MSE invites applications from qualified candidates with commitment to excellent teaching and scholarship at the postgraduate level for faculty positions at the level of Professor, Associate Professor and Assistant Professor. Candidates specializing in any sub-discipline of Economics may apply but preference will be given to the following specializations:

Professor: Excellent academic record with Ph.D. in Economics, at least 5 publications in refereed journals and ten years of teaching experience at postgraduate level.

Associate Professor: Good academic record with Ph.D. in Economics, at least 3 publications in refereed journals and 5 years of teaching experience at postgraduate level.

Assistant Professor: Good academic record with Ph.D. with at least one refereed publication.

For Actuarial Economics, qualifications from the Institute of Actuaries of India or abroad will also be considered relevant.

Basic Pay Scales: Professor: Rs. 25,000-1,000-39,000 Associate Professor: Rs. 19,000-750-29,500 Assistant Professor: Rs. 16,000-500-23,000

HRA at 50% of Basic, Conveyance Allowance, Medical Reimbursement and Contribution of Employees’ Provident Fund will be provided as per MSE rules. Additional incentives include provisions for undertaking consultancy and share in Project Fees subject to MSE rules.

Madras School of Economics may consider suitable candidates who may not have applied. Faculty members who may be willing to come on leave for one or two years may also apply. Interested candidates may send their bio-data with names of three referees to the Director, Madras School of Economics, Gandhi Mandapam Road, Chennai 600 025 by April 15, 2008.

Madras School of Economics (MSE) is a centre of advanced studies engaged in postgraduate teaching and research in Economics. Details about the School can be viewed at our website: www.mse.ac.in

Director Fax No: 22354847/22352155 Email: info@mse.ac.in