Issues Where the IMF Must Show More Substance

You are correct ("Refurbishing the Fund," April 11) that Rodrigo de Rato, managing director of the International Monetary Fund, has recently put forward a more ambitious set of reform proposals than many thought was likely eight months ago. You are also correct that proposed IMF reforms stand a chance of restoring the IMF's luster only if they are embraced by a broad set of key members. Finally, you are right to focus on three tightly linked issues: multilateral surveillance (policing the policies of systemically important members), providing greater assurances of available financing on an appropriate scale (restoring the Fund's role as a lender of final resort), and quota reform (rebalancing the governance of the Fund).

However, your analysis is incomplete in three respects.

First, the Fund is required by its articles of agreement to police its members' exchange rate policies. Though exchange rate adjustments are not the entire answer, this area is central to the IMF's responsibility in helping to resolve global imbalances. If Mr. de Rato and the Fund fail in the task it faces now, it will have a long climb back to relevance.

Second, it is not only that the devil is in the details of how the Fund should provide appropriate assurance of predictable financing on the appropriate scale. Mr. de Rato and Fund members must silence the siren song of those who argue that the Fund should forswear large financial support packages because of moral hazard concerns. Those concerns apparently did not exist when their countries were the beneficiaries of large IMF programs.

Third, reforming IMF governance is not merely about adjusting the absolute and relative size of quotas of a few Asian emerging market countries. It is about adjusting the quotas of a much larger group of countries. More important, it is about reducing substantially the relative size of European Union quotas in the Fund and consolidating their 10 seats on the executive board into no more than two. On this third crucial issue, Mr. de Rato has been disappointingly timid.

Let us hope that by the time of the annual meetings in Singapore, the managing director and the key members of the Fund can agree to add more substance to this triad of issues.