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|Merge the IMF and the World Bank|
Corriere della Sera - October 5th 2007
Dominique Strauss-Kahn is a fine choice as the new head of the International Monetary Fund, and the job he will take up formally on November 1st is a fine-sounding job, full of prestige. A skilled and very internationally minded former finance minister of
The IMF faces two problems, one temporary and one permanent. The temporary problem is that this institution is really only needed in bad times, and the past few years have been good. It was set up in 1944 to help countries meet their international payments when they run out of money. But there have been no big financial crises which have required the IMF to ride to the rescue since the East Asian and Russian crisis of 1997-98. That also means that countries that have borrowed money from the IMF have been repaying it, and few new borrowers have come along, so that its income has fallen and its budget has had to be cut. This will eventually change, however: sad to say, there will always be new financial crises.
The permanent problem is that the IMF has become less likely to play a central role the next time a crisis occurs. This is because the big developing countries, such as
To deal with this growing irrelevance, Mr Strauss-Kahn can and should do three things. The first is that he needs to persuade the IMF’s 185 member countries to change the institution’s voting rights to give more power to the emerging capital-rich nations, including
The second action he can do at the same time. This is to tour the world’s major financial capitals calling on the governments of the EU, Japan, China, Brazil, Russia and the United States, among others, to start preparing a plan, now, for how they will act together when the next crisis hits. The financial turmoil during this summer should have shown everyone that a crisis can arise suddenly and ferociously. In the past, the American Treasury took the lead in responding, together with the IMF. Now, that will not be enough.
The third action is more drastic. He should probably wait until he has established himself in office before proposing it. But he should not lose too much time. This third action is that Mr Strauss-Kahn should propose a merger between the IMF and its neighbour in
The World Bank’s head, Robert Zoellick, is also new in his job, and so could be persuaded to do some fresh thinking. In 2009 both institutions will be 65 years old. Nowadays, 65 is considered the right time to retire—and then be reborn as a single new global fund.