Could the IMF Have Prevented This Crisis?

The IMF has always been quick to point out developing countries' economic vulnerabilities and demand that their government's redress them. But when it came to the US, the Fund sat on its hands, issuing one sanguine report after another about the mortgage market until the problem blew up.

WASHINGTON D.C. -- Until recently, the International Monetary Fund’s main job was lending to countries with balance-of-payment problems. Today, however, emerging countries increasingly prefer to “self-insure” by accumulating reserves (and sharing them through regional pooling arrangements). As a result, the Fund must change, reinforcing its supervisory role and its capacity to oversee members’ compliance with their obligation to contribute to financial stability. So its failure to press the United States to redress the mortgage-market vulnerabilities that precipitated the current financial crisis indicates that much remains to be done.