On What Terms Is the IMF Worth Funding?

At the beginning of the century the International Monetary Fund (IMF) faced crises of legitimacy, relevance, and budgetary finance. The IMF is now confronted by what likely will be the worst global recession since World War II, potentially huge demand for financial assistance out of its limited resources, and calls for it to play a more central role in the international financial and regulatory system. At the same time, the incoming Obama administration must decide what to do about the modest package of IMF reforms that was completed in the spring of 2008. The package requires US congressional approval to go into effect.

Edwin M. Truman reviews the recent, slow progress on IMF reform and makes recommendations to the Obama administration against the background of that record, the emerging global recession, and continuing financial turmoil. He recommends that the IMF package be reopened to include a doubling of IMF quotas and an amendment that would permit the Fund to swap special drawing rights (SDR) with major central banks to finance its short-term lending facility. He further recommends a special, one-time allocation of 50 billion SDR. If these proposals are turned down by the G-20 at its meeting in April, the Obama administration should seek congressional approval of the IMF package as it now stands because a failure to do so would seriously undermine the Fund as a central multilateral institution.