IMF Reforms since 1998 - Essay Example

Essay Questions Student’s Name Grade Course: Tutor’s Name Date IMF reforms since 1998 By 1998, the International Monetary Fund, hereunder referred to as IMF, had witnesses at least three financial crises: the Mexican financial crises between 1994 and 1995; the East Asian financial crises between 1997 and 1998; and the Russian Crises in 1998. Later between 2000 and 2001, Turkey and Argentina experienced similar financial crises. Having been formed 1944 as an organization meant to promote economic growth; many people felt that the economic crises in the early and late 1990s could have been avoided if the IMF had played a much bigger role. For this reason, many called for reforms in the organization. According to Weiss (2004), the proposed reforms fell into three distinct categories: “Crisis prevention, crisis management and the IMF’s role in economic development” (1). The economic surveillance responsibility allows the IMF to monitor any financial and economic development in all 184 member countries. The organisation is also meant to advice all member countries about the economic developments they undertake. The lending responsibility gives IMF the mandate to provide financial resources to a country experiencing difficulties in balancing its payments. The technical assistance offered by IMF to member countries allows the organisation to provide help on the designing and making of domestic policies in order to ensure that all the member countries have quality and effective financial and economic policies. Reforms by the IMF were grouped into three categories: “1) international financial crisis prevention; 2) international financial crisis management; 3) role in economic development and its relationship to the world bank” (Weiss, 2004, p. 2). Reforms in Crisis Prevention Impelled by the Asian, Russian and Brazilian financial crises, the United States Congress in fall, 1998 deliberated and passed the Omnibus Consolidated and Emergency Supplemental Appropriations Act for the 1999 financial year. In this Act of Congress, it was stipulated that the US would increase its funds quota to the IMF only after the latter met specific transparency and accountability measures (The Heritage Foundation, 1998). Among the reforms that came as a result of the demands placed on IMF by congress was the formation of the ‘Quota Formula Review Group’ in 1999, for purposes of addressing the voting power imbalance among IMF member countries. In the same year, the Financial Stability Forum (FSF) was formed for purposes of promoting financial stability through the exchange of information among member countries. Under the FSB standards, the IMF was entrusted with overseeing areas that address data transparency and macroeconomic policies in the member countries (FSB, 2010). This includes issuing guidelines on financial and monetary policy, issuing a code of practice on fiscal policy transparency and setting standard for data dissemination for all the member countries. Reforms affecting crisis management Reforms in this category were specifically meant to improve how IMF uses resources to manage crises that may occur in any of its member countries. More specifically, Weiss (2004) observes that crisis-management reforms were meant to curb the spread of financial or economic crises from one country to others. The reforms were also introduced for purposes of minimizing the damage that financial crisis have on an individual economy. Notably, financial crisis in the 1990s were cause by different factors. In Asia, it was as a result of liquidity concerns. Argentina on the hand had unstable levels of debts, while Turkey had suffered macro-economic difficulties, which eventually degenerated to a financial crisis. In 2000, the IMF formed the Capital Markets Consultative Group and the International Capital Markets. These two were internal groups meant to explore and conduct research on issues that affect the capital markets internationally, forces affecting capital supply and the challenges that policy makers encounter due to capital flow constraints. In 2002, the IMF proposed the “sovereign debt restricting mechanism (SDRM)”, (Krugler, 2002), which proposes some sort of bankruptcy procedure to countries facing the risk of going into a financial crises due to foreign debts. This proposal enables countries to not only seek assistance from IMF, but also renegotiate the debt contracts with the lenders. Moreover, the IMF created the Poverty and Growth Facility in 1999, an initiative that allows it to give concessional loans to its poorest member countries. In conjunction with the World Bank, IMF also initiated the ‘Financial Sector Assessment Program’, an initiative that encourages member countries to create solid financial systems. In 2004, the organisation initiated the ‘Trade integration mechanism’, a program meant to help developing countries to address difficulties they face in balancing payments when trading with rich countries. The role of IMF and G20 between 2008 and 2010 During the international financial crises that took place between 2008 and 2010, the G20 countries sought the help of IMF, whereby, the organisation was supposed to act as the main “research and advisory body” for the countries (Bretton Woods Project, 2010). The main input by IMF was the provision of technical advice and technical advice to the mutual assessment process that was designed to review different measures that the G20 countries would take in order to encourage growth in their respective economies and hence put an end to the financial crisis. Similar to its core mandate, the G20 also charged the IMF to provide conduct research, surveillance and provide technical advice to the countries. To date, IMF reports have not been published but have been forwarded to the G20 for discussion. Overall, the steps taken by the IMF from 1998 to date and the actions of the IMF and the G20 countries in response to the most recent financial crises are insufficient. Reason being that if the reforms taken after the financial crises of the 1990s were indeed sufficient, the most recent financial crises could not have happened. Considering that analysts suggest that the 2007-2008 financial crises was spurred by excessive risk taking by banks and other financial institutions, the solution to future economic crises may need the IMF and the G20 countries to adopt a new set of reforms. In my suggestion, more stringent surveillance and regulation of financial institutions should underline all reforms. However, this should be done in a manner that allows the financial sector to operate with freedom, but without unnecessary risk taking. References Bretton Woods Project 2010, The IMF’s Policy Advisory Role to the G20, Viewed 07, August 2010, FSB 2010, 12 key standards for sound financial systems, viewed 07, August 2010, < http://www.financialstabilityboard.org/cos/key_standards.htm> Krueger, A.O. 2002, A new Approach to sovereign debt restructuring, viewed 07, August 2010, < http://www.imf.org/external/pubs/ft/exrp/sdrm/eng/sdrm.pdf> The Heritage Foundation, 1998, A checklist for IMF reform, backgrounder # 1204, viewed 07 August, 2010, < http://www.heritage.org/Research/Reports/1998/07/A-Checklist-for-IMF-Reform> Weiss, M.A. 2004, The International Monetary Fund: Current Reforms, CRS report for Congress, order code RS21330, viewed 7, August 2010, < http://www.au.af.mil/au/awc/awcgate/crs/rs21330.pdf> The Copenhagen Accord Outcomes The Copenhagen Accord on climate change is a deal reached between South Africa, the United States, India, China and Brazil in 2009. Though the deal is not legally binding, it forms a framework for climate talks in the future. During the 2009 Summit where the particulars of the accord were deliberated, 193 countries recognised its contents but did not approve it thus raising its validity as a legally binding document. This aside, the document recognised the importance of limiting global temperatures at a maximum of 2 centigrade or 3.6 Fahrenheit. Although not a formal target, the summit identified 2C/3.6F limit as the “scientific view stipulating that temperature increase should be held below this figure” (BBC, 2010). The accord further establishes a need for all UN member countries to make pledges regarding the activities they would undertake towards curbing carbon emissions in the next one decade. Notably however, the accord has February 1, 2010 as the deadline for these pledges, but has not articulated any penalties for countries that will not have made their pledge by then. The accord further states that the rich countries will be required to submit individual emission reports, which will be scrutinised in a “rigorous, robust and transparent” manner using the UN framework convention on Climate Change” (BBC, 2010), in order to ensure that the countries keep their pledges and that they uphold transparency about their emission levels. The accord further stipulates that developed countries will deliver 18.5 billion Euros to developing countries by the year 2012, with an overall aim of giving $100 billion to the same countries by 2020. According to the accord, these funds will be advanced to poor developing countries as a means of enabling them to cope with effects of climate change. Further, the accord states that rich UN member countries will jointly establish a ‘green climate fund’, which will offer support to climate-related projects in developing countries, which are meant to mitigate, foster adaptation, build capacity and encourage technology transfer in climate conservation efforts (UNFCCC, 2010). As Egenhofer and Georgiev (2009) observe, “Developed countries for the first time have committed to the goal of mobilising $100 billion annually to benefit the developing countries” (p. 2). Accordingly, this could be the solution to the standoff previously witnessed between developed and developing countries while negotiating climate-related agendas. More to this, the there is a possibility that this goal would create more carbon markets thus benefiting countries that keep their carbon emissions lower than the stipulated figure. The Accord also stipulated that a review of how UN member countries have implemented the recommendations therein would be conducted in 2015. Another notable outcome of the Copenhagen Accord was the explicit acknowledgement of the need to address deforestation and acts of forest degradation in all member countries (Greenpeace, 2009, p.2). For this, the accord recommends that a body with the capacity to address these two issues be established and given the necessary mandate. There are no specific timelines in this recommendation thus making it vague and subject to the establishment of an international body that would address deforestation in member countries. Just as countries were made to make individual pledges on carbon emission efforts, may be the same requirement would have made about a-forestation and the prevention of forest degradation. After all, forests have been proven as some of the most effective carbon banks, only second to soil. But perhaps the greatest outcomes were the agreement by China and the United States to reduce emissions. Statistics show that these two countries are the largest emitters in the world. China, said it would take steps to reduce its overall emissions and would report on the same to the international body on a regular basis (Egenhofer & Georgiev, 2009). The US on the other hand agreed to reduce its emission levels and went ahead to promise help to poor countries affected by the emissions. Overall, the two countries took accountability for their actions, and while the actions of the US may be limited by decisions made in congress regarding the matter, at least the negotiations lay the groundwork for future negotiations. Notably, the Copenhagen Accord sought not to trounce on the sovereignty of individual countries (Wirth, 2010). In so doing, it gave UN member countries the leeway to forge the direction that each might want to take. While this is an ideal way of giving countries a freehand to devise carbon emission reduction strategies that fits the domestic scenario, it is also possible that some countries may adopt some inefficient ways since there are no laid down rules. In addition to this, the fact that there are no specific consequences laid down for countries that do not make their respective carbon emission pledges, or those that fail to stick to them, may mean that some countries will not take the exercise seriously. Since the accord is not a treaty, and is not legally binding, some countries can argue that they are under no obligation to meet the contents therein. Overall however, the outcomes of the Copenhagen accord may form the basis for future greenhouse emission agreements. For this to happen however, countries would need to introduce clauses that would make the accord legally binding. Alternatively, countries can opt to ride on the goodwill that surrounds climate talks especially at a time when it is becoming more obvious that emissions are contributing to global warming, and hope that member countries that recognised the document would be willing to enforce all the recommendations stipulated therein. The accord can also be turned into a treaty, where UN member countries can ratify the same. This would then form a more solid basis for the management of green house gases in the future. In all member countries, it is quite obvious that a cleaner environment will come at a cost. For this reason, countries especially under the UN umbrella need to make more deliberate choices in future talks, where clear and distinct priorities are set in order to encourage more countries to slow emissions and adopt cleaner energy. References BBC. 2010. Copenhagen deal: Key Points. BBC News, viewed 07, August 2010, http://news.bbc.co.uk/2/hi/science/nature/8422307.stm Egenhofer, C & Georgiev, A. 2009, ‘The Copenhagen Accord: A first stab at deciphering the implications for the EU,’ Centre for European Policy Studies commentary, pp. 1-6. Wirth, T. E. 2010. The Lessons of Copenhagen, The Hill, viewed 07, August 2010, < http://thehill.com/opinion/op-ed/75577-the-lessons-of-copenhagen> Greenpeace, 2009, Greenpeace Copenhagen outcome assessment, viewed 07, August 2010, < http://www.greenpeace.org/raw/content/eu-unit/press-centre/reports/greenpeace-assessment-COP15-07-01-10.pdf> UNFCCC, 2010, Draft decision-/CP.15, Proposal by the president: Copenhagen accord, United Nations, viewed 07 august, 2010, < http://unfccc.int/resource/docs/2009/cop15/eng/l07.pdf> Read More