The International Monetary Fund will seek to extend its role as a global financial policeman at this week's meeting of its shareholders. The Mexico crisis, foreign exchange turbulence and the collapse of Barings have exposed the need for a stronger institution able to respond quickly to problems, according to Michel Camdessus, the IMF's managing director.
The Fund proposes it extends its role through increased surveillance of member countries in order to prevent, or anticipate, future crises. The IMF also wants a big increase in its financial resources in order to tackle future problems swiftly.
Mr Camdessus said reaction to Mexico's shock devaluation and subsequent liquidity crisis had been too slow. This was partly because European countries had wrongly thought it was only a regional problem. This had led to tensions between the US and European countries over the multi-billion dollar rescue plan.
The Mexican crisis also made it clear, according to an unpublished internal IMF report, that the Fund's relationships with member governments were too cosy. Many IMF officials thought the Mexican authorities had been less than transparent in the information they had provided about the economy.
Mr Camdessus said: "We have a tendency to give too much benefit of the doubt to our member countries." In future the Fund would insist on getting more information. It would also develop links with independent economists in member countries.
He repeated the IMF's view that the Group of Seven industrial countries had missed an opportunity to halt the recent turbulence in currency markets by failing to co-ordinate interest rate moves. He criticised the countries for paying too much attention to domestic factors and too little to international considerations - especially the US. America should recognise its responsibilities as the manager of a reserve currency.
Currency markets were not massively capricious, Mr Camdessus said. The G7 countries would have to correct their economic policies, with the US tackling its budget deficit and Japan opening up its markets to foreign competition.
The IMF's argument that changes in its role are necessary in a world at the mercy of global capital markets is likely to get a sympathetic hearing. The policy-making Interim Committee meets tomorrow, the day after the G7 finance ministers meet for their own discussions.
However, there will be some objections to the proposed scale of the increase in its capital and reserves. The Interim Committee is also due to review the progress members have made during the past six months in implementing policies recommended by the IMF.Reuse content