John Maynard Keynes famously observed, “when the facts change, I change my mind. What do you do, sir?” Evidently the same may not be said of the U.S. Treasury regarding the appropriate size of the International Monetary Fund. While the U.S. Treasury is all too ready to argue the case for a bigger IMF when circumstances appear to justify such a move, it has been reluctant to revise its assessment now that changed circumstances indicate a smaller IMF is preferable.
Immediately prior to the onset of the European sovereign debt crisis in early 2010, major IMF shareholders were considering whether the IMF’s role in the international financial system should be downsized. The IMF’s traditional clients appeared to be highly disinclined to again come under the IMF’s tutelage. Following the Asian crisis in 1998, most Asian countries moved to flexible exchange rate systems and built up substantial arsenals of international reserves with the express purpose of ensuring that they would never again be subject to the humiliating conditions that the IMF imposed on its Asian lending. Following the Latin American exchange rate crisis and the Russian crisis in the late 1990s, those countries too expressed strong antipathy to the IMF’s conditional lending. For the most part, those countries also moved to flexible exchange rate systems, built up international reserves, and mended their wayward fiscal ways. Those changes reduced the chances that they would need the IMF on anything like the scale they had previously had.
Click here to read the full article on The American.