Beyond the IMF - Working Paper 99
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Devesh Kapur and Richard Webb
09/15/2006
The authors argue that efforts to reform the International Monetary Fund (IMF) should be complemented by the exploration of alternative approaches to fulfilling the functions currently provided by the IMF. They suggest that such competition would give developing countries greater bargaining leverage and spur the IMF to improve performance. The paper focuses in particular on the IMF's insurance role and argues for a rapid restructuring and significant cuts of the Fund's administrative budget, with the savings used to lower the interest rates charged to borrowers.
Reviewing a checklist of core IMF functions, the authors cite examples of market mechanisms and government interventions that in some measure act as substitutes, including crisis resolution, exchange rate management, financial policy coordination and surveillance. At the same time, they argue, exit from the Fund is being driven by high borrowing costs, as market rates decline relative to Fund charges. Behind that trend is a cost crunch in the institution. A shrinking customer base means falling revenues, yet the institution has not cut administrative expenses. Among the questions the paper addresses: How effective are the alternative mechanisms? To what extent would the absence of an IMF mean a more dangerous world?