Strategic Panorama 2009 - 2010 - IEEE

The global recession and its impact on international economic relations
which could adopt more cooperative attitudes and cease to behave as
free riders in the international system. Some of the most important reforms
the G-20 has set in motion relate to the IMF’s new role in world financial
governance. This subject is dealt with in the next section.
Reform of the International Monetary Fund
After years in the background the financial crisis has returned the IMF
to a position as key player in the world economy. Furthermore, it has
enabled the institution to increase its budget, change some of its most
criticised credit lines and convey a more Keynesian (and therefore less
«conservative») image than in the past. Accordingly, since the middle of
2008 the IMF has granted loans to emerging countries taken by surprise
by the US crash. And the G-20 summit of April 2009 in London paved
the way for a substantial increase in its financing, including a significant
allocation of 250 billion dollars of Special Drawing Rights (SDRs) and
the authorisation to issue bonds on the international markets. What is
more, its new loans are being paid out with revised conditions through
its new flexible credit line, which is going down well with the public of the
borrowing countries as it is not forcing them to adopt new adjustment
programmes.
But once the recession is over the IMF will still need to address the pending
issue of reforming its internal governance and culture in order to reflect
the new balance of power in the world economy and to tackle the global
financial challenges with legitimacy. These challenges are huge and involve
improving international financial regulation and supervision, limiting leverage
and risk levels, increasing information and transparency in markets,
redefining and harmonising accounting valuation standards, increasing the
capital requirements of financial institutions, extending regulation to certain
markets that are still opaque, preventing credit from being so procyclical,
carrying out better supervision of the derivatives markets, ensuring that
asset prices are better incorporated into monetary policy to avoid the emergence
of bubbles and revising the functioning of rating agencies.
Although some developments have taken place in the right direction, if
the reforms are insufficient there is a risk that the IMF will continue to be
perceived as illegitimate by the emerging economies, which would lead it
to become permanently insignificant and, as such, incapable of fulfilling its
mandate effectively. Therefore, although there continues to be little place
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