King: IMF must reform or face prospect of irreparable damage

Click to follow

Mervyn King, the Governor of the Bank of England, yesterday warned that the International Monetary Fund faced "irreparable" damage if its members failed to agree to wholesale reform at a key meeting of its board next spring.

Mr King said its 184 members must agree on a new regime of surveillance to deal with economic shocks such as the 1997 Asian financial crisis. He said a deal on voting rights to reflect the economic and political weights of the members was also vital for long-term credibility.

His comments came as the IMF criticised Thailand's short-lived decision to impose capital controls on foreign investors as "too strong and far-reaching".

Mr King used a keynote address in Australia, which is about to relinquish the presidency of the G20 group of emerging economies, to lay out his stall ahead of the IMF's spring meetings in April. He has long made IMF reform a key part of his agenda, to the extent that he has been tipped as a future managing director.

He is credited with helped Rodrigo de Rato, the current managing director, get a reform package on the table that reforms the voting structure and establishes a new surveillance system focused on the dangers that economies' policies posed globally.

He told the Melbourne Centre for Financial Studies this morning: "The task of agreeing on a new system will be enormously difficult but, if we fail, the influence of the institutions will diminish further, possible irreparably."

He said the IMF had been guilty of examining microeconomic issues in "unnecessary detail" and devoting insufficient attention to the spillover effects.

He highlighted the recent annual review of the Chinese economy that failed to highlight the role the Asian tiger had played in driving up world oil prices.

He said that even when the IMF's research had been well focused, such as its analysis of Thailand's exchange rate policies in 1996, it had insufficient weight to prevent the ensuing policy mistakes that sparked the financial crisis across the entire region

"By the spring meetings in April we shall know whether [reform] is likely, when we see the results of the current review of the 1977 decision on exchange rate surveillance," he said.

Yesterday the IMF) welcomed Thailand's partial rollback of controls aimed at capping the surge in its currency, which triggered a 19 per cent fall on the stock market on Tuesday.

Pridiyathorn Devakula, the finance minister, announced an abrupt policy U-turn late on the same day as the equity carnage, amending the controls to exclude equity inflows. The stock market rebounded 10 per cent yesterday

"The measures were too strong and far-reaching, and the partial roll-back of the new controls today is welcome," the IMF said in a statement yesterday. "Thailand's underlying economic fundamentals remain solid and we believe that growth will remain resilient in the face of the financial market turbulence this week."

Comments