The international monetary and financial system has witnessed tremendous change over the recent decades. Rapid expansion in cross-border capital flows, continued financial innovation, and deepening financial markets pose increasing challenges not only for national policy makers, but also for international financial institutions. This has been particularly true of the IMF as it seeks to serve its global membership, and it has triggered a critically important discussion of the Fund’s strategic direction.
The IMF’s current strategic review does not start from scratch. The reform process was launched at the end of the 1990’s and was continued by former Managing Director Horst Köhler with important initiatives. These initiatives – particularly efforts to strengthen the IMF’s surveillance function and the so-called “exceptional access framework” – must now be locked in and implemented consistently.
For example, the introduction of standards and codes, reports on their observation (ROSC’s), Financial Sector Assessment Programs (FSAP’s), and the resulting increase in the Fund’s transparency might contribute to an improvement of bilateral, regional, and multilateral surveillance. The exceptional access policy, which seeks to both enhance the predictability of the Fund’s lending policy and to safeguard its financial position, is still waiting for its first real test.
But the world needs to look beyond even these issues. The IMF’s management shares many strategic considerations repeatedly raised by the Bundesbank, which has argued that the Fund should limit its activities to its core mandate: promoting monetary and financial stability. Thus, the IMF’s role in the international monetary system should not go beyond applying its key instruments for promoting macroeconomic stability: surveillance and economic policy advice.