Abstract

Good afternoon, ladies and gentlemen, and welcome to this Per Jacobsson panel discussion. My name is Andrew Crockett. I am Chairman of the Board of Directors of the Per Jacobsson Foundation, and it is a great pleasure both to participate in the panel with our guests and also to welcome you to this event.

Andrew Crockett

Good afternoon, ladies and gentlemen, and welcome to this Per Jacobsson panel discussion. My name is Andrew Crockett. I am Chairman of the Board of Directors of the Per Jacobsson Foundation, and it is a great pleasure both to participate in the panel with our guests and also to welcome you to this event.

The topic this afternoon is the role and governance of the IMF. When we chose the topic some months ago, it seemed topical. It seems even more topical now. Many commentators have been asking how the Bretton Woods institutions can adapt themselves to the new economic realities of the twenty-first century, and this debate has, if anything, been sharpened by the current crisis. Some have suggested that the Fund has become irrelevant to the kinds of financial crises we are living through today, and others see the opportunity for the Fund to reinvent itself in the face of the fundamental changes in the financial landscape.

In fact, history suggests that the institution can be quite adaptable. For a quarter of a century or so after its foundation, the Fund was remarkably successful in promoting the removal of exchange restrictions within a fixed exchange rate system. And subsequently, following the breakdown of fixed exchange rates, it played a pivotal role in helping member countries deal with periodic payments difficulties as their economies and financial systems were integrated into the global economy.

Recent experience seems to suggest, however, that the traditional balance of payments crises with which we associate Fund assistance, rooted in unsustainable exchange rates, may not be the main issue facing the global economy in the future. Integration of financial systems and the complexities of new financial instruments seem to have made financial stability more fragile, and meanwhile fundamental changes have taken place in the distribution of economic power across countries.

So I think the transformation of the IMF’s role in the international financial system will need to be more wide ranging than in the past. Of course, the Fund has been at the business of reform for some years now. It has recently initiated actions to reform country representation in its decision-making bodies and to modernize its income and expenditure framework.

But now an even more fundamental question needs to be addressed, and that is, what are the appropriate role and functions of the Fund in the new financial environment? How do the organization’s traditional activities need to be adapted to secure its continued relevance in a much-changed world?

Against this broad background, I would like to suggest several questions for the panel’s consideration.

First, and obviously in the forefront of our minds at the moment, how can the Fund be more effective in helping prevent, and if necessary deal with, global financial instability? Should the relative role of the Fund be strengthened vis-à-vis other bodies, such as the Financial Stability Forum (FSF), the G-7, and various other groupings? And if so, how should that be done?

A second set of questions is, what should be the focus of the Fund in its regular work of overseeing the functioning of the international monetary system? Given its historic mandate with respect to exchange rates, how can the Fund be more effective in ensuring that exchange rates play their appropriate role in the working of the adjustment process, and how can the international community be more effective in ensuring that individual countries play by the rules?

A third set of questions concerns the Fund as a lending institution. How can it adapt its lending facilities in the light of changing realities? For example, should the Fund be empowered to lend more than it can at the moment? And does the traditional role of conditionality need to be rethought?

And, finally, a very general question: if governments were starting afresh in 2008, how would the international monetary institution they might design differ from the current IMF?

Those are some questions which I will ask the panel to address. I will ask them to start with brief, five-minute statements. Then, in the course of the hour or so that we have together, I hope we can amplify to draw out from them some broad range of answers or thoughts on these issues.

We have a distinguished panel that, in a fundamental sense, needs no introduction. So I will be very brief. Stan Fischer is not with us physically today, but I hope he is on the phone and hearing what I have to say now. And I will ask him to come in after we have heard from the other three panelists. Stan is Governor of the Bank of Israel. He was prevented, unfortunately, from coming to Washington. And as everybody in the room will know, he was for seven or eight years the First Deputy Managing Director of the IMF, including during the entire period of the Asian crisis.

Trevor Manuel has been South Africa’s Finance Minister since 1996. He has served as Chairman of the Development Committee, and he is now Chair of the group of eminent persons looking at decision-making processes within the Fund.

Jean Pisani-Ferry has been Director of the Brussels-based think tank Bruegel since 2005. He is a member of the French Prime Minister’s Council of Economic Analysis, and he is a senior academic in France.

And finally, Raghu Rajan, who is Professor of Finance at the University of Chicago’s Business School, was Chief Economist of the IMF from 2003 to 2006.

So I do not think we could have a better-qualified panel to address these issues. I will not take any more time. I will invite, first, Trevor to give us his thoughts, then Jean, then Raghu and, finally, hoping that the telephone link with Tel Aviv is working, Stan.

Further Reflections on Reform