Strengthening the Governance of the International Monetary Fund: How a Dual Board Structure Could Raise the Effectiveness and Legitimacy of a Key Global Institution

Abstract

he ongoing financial crisis and a difficult international adjustment process involve a multitude of actors and forums. They all grapple with I the complexities of a globalized economic and financial system and the challenges arising from the financial turmoil and economic downturn. Gov ernments have responded with unilateral, bilateral, or regional actions. Major central banks have cooperated on an ad hoc basis, and the G7 and the G-20 have attempted to provide economic stewardship. But the considerable spillovers and policy interdependence in a globalized economy that were already visible in the run-up to the turmoil have shown that the international monetary and financial system needs an effective steering committee to address such spill overs and facilitate cooperation on global economic matters. For decades, the International Monetary Fund (IMF) was at the helm of the international monetary system. However, an alleged unequal treatment of its mem bers, an ever expanding mandate diluting its core responsibilities, complacency in its policy advice, and the dominance of its governance by some large countries have more and more sidelined the IMF in the international policy debate. While the actions by the G7 may have been sufficient to address economic shocks in the past, the emergence of new economic players in Latin America, Eastern Europe, and Asia necessitates a fresh look at how to address global economic challenges, which involve a rising number of systemically important players. The IMF has realized that it risks being sidelined in global economic af fairs and is now in its fourth year of a strategic review of its setup and activi ties, with the declared objective of regaining its position as the steward of international financial cooperation and stability and putting itself firmly at the center of the international monetary system. Progress is under way: The IMF is strengthening its surveillance by deepening the analysis of interlinkages, including exchange rates, in its bilateral economic surveillance. It is placing