The IMF and Global Coordination

Having initially been shunned at the outset of the recent financial crisis, the IMF has assumed a key role in financing – and, more importantly, implementing – fiscal-stabilization programs. But the Fund is also at the epicenter of large-scale global coordination challenges, particularly the need to rebalance and restore global demand.

NEW YORK – Before the crisis of 2008, the International Monetary Fund was in decline. Demand for loans was low, leaving it short of revenue. Asia remained leery of the Fund a full ten years after the currency crises of the late 1990’s. Its analytical talents remained high but downsizing placed them at risk.

The crisis changed all that. It became clear that the IMF has a crucial role to play in dealing with crisis-induced instability. Moreover, because of the Fund’s broad and deeply embedded multinational expertise, its activities are central to achieving globally cooperative solutions to economic and financial problems. Without such solutions, the system will tend to become periodically unstable, and to go off on unsustainable paths that end destructively. We have just lived through one of these episodes.

The IMF is needed for several key purposes. One involves crisis response. In a global financial upheaval like our most recent one, capital flows shift abruptly and dramatically, causing credit, financing, and balance-of-payments problems, as well as volatile exchange rates. Left unattended, these problems can cause widespread damage in a wide range of countries, many of which are innocent bystanders.

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