G-7 Backs IMF Reform
Group of Seven (G-7) finance ministers and central bank governors expressed support last month for the IMF's proposal to refocus its operations on core priorities and to cut spending by $100 million over three years, saying that they are prepared to assist the IMF in taking measures to augment its income.
Since then, the United States has reiterated its commitment to helping the IMF devise a viable model for financing its operations. The institution's medium-term financing gap, which has emerged because of the recent decline in IMF lending, is projected to be around $400 million a year if new sources of income are not found.
“The United States will help ensure that the IMF has adequate resources to fulfill its vital global mission by seeking authority from Congress for a limited sale of IMF gold,” said U.S. Treasury Under Secretary David H. McCormick, speaking at the Peterson Institute for International Economics in Washington on February 25.
“We believe an endowment, financed through a limited gold sale, combined with continued budget discipline, will provide the basis for sound and sustainable IMF finances,” McCormick said. A committee formed last year to study the IMF's long-term financing options had proposed the creation of such an endowment, but IMF member country approval must be obtained before new financing measures are implemented.
Both McCormick and the G-7 stressed that the IMF should continue to strengthen its exchange rate surveillance and pursue the reform of its governance structure.
Study on Securities Market Regulation
In many countries, a combination of factors has undermined the capacity of securities market regulators to regulate effectively, a recent IMF study shows. These include insufficient legal authority, as well as a lack of resources, skills, and political will. This weak capacity is more acute in areas that are technically complex, such as valuation of assets, risk management practices, and internal controls.
Although gaps in securities market regulation are a worldwide phenomenon, they are greater in low-income countries than elsewhere, the study finds.
Algeria's Reforms Pay Off
Algeria's market-oriented economic reforms over recent years have started to bear fruit, the IMF noted on February 11 after its annual health check of the economy. The country is registering higher growth—4.6 percent in 2007, up from 2 percent in 2006—low inflation, and strong fiscal and external positions. The IMF Board noted that Algeria's main challenges are to ensure sustained high productivity and nonhydrocarbon growth and to lower unemployment. Unemployment declined in 2007 but remains high, particularly among youth.
Afghanistan Gets $17.9 Million
The IMF's Executive Board approved a disbursement to Afghanistan of $17.9 million under its three-year Poverty Reduction and Growth Facility arrangement of 2006. IMF Deputy Managing Director Murilo Portugal noted in a statement that, despite the difficult security environment, the country continues to show satisfactory performance under the IMF-backed program, but that structural reforms will need to be accelerated.
Portugal said that the Afghan authorities have launched a joint appeal with the World Food Program to distribute wheat to areas affected by shortages. “Cash transfers should be targeted to vulnerable households— sourced from the existing budget envelope—to mitigate the effect on the poor of rising wheat prices,” he said.
IMF, Trade Union Group to Meet
Representatives of the International Trade Union Confederation (ITUC) will return to Washington in March 2008 to discuss with the IMF the global economic outlook and the growing influence of collective investment instruments, such as hedge funds.
The meeting is part of a longstanding dialogue between the international labor union movement and the Bretton Woods institutions. “Trade unions often give us insights that help us refine our policy advice to countries,” said Richard Harmsen of the IMF's Policy Development and Review Department.
The IMF's work touches on many areas of significance for trade unions. The IMF's main role is to promote macroeconomic stability and sustainable growth, including promoting high levels of employment in its member countries. The IMF also monitors labor market characteristics and developments because these factors can have a significant impact on a country's macroeconomic performance. When labor markets are more flexible and competitive, the economy will generally react better to shocks. And when labor unit costs are too high, the country may suffer a loss of competitiveness, because higher labor costs often result in higher prices.
The ITUC has called for greater involvement of local unions in the elaboration of poverty reduction strategies in low-income countries. More recently, the ITUC has advocated greater regulation, transparency, and accountability of hedge funds, sovereign wealth funds, and private equity.