MSNBC.com/newsweek: Who Needs the IMF? - by Kenneth Rogoff

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Who Needs the IMF?- by Kenneth Rogoff

Sept. 25, 2006 issue - As the international Monetary Fund holds its big fall meetings in Singapore this week, it faces a financial world that has been turned on its head. Traditionally, the Fund has helped out bankrupt emerging-market governments using loan money collected mainly from Western nations. But now, the Fund is being asked, in effect, to play a much broader role in helping maintain financial stability in a world where the lenders and creditors are trading places. With the United States borrowing two thirds of global net savings and Euro-zone countries like Italy, Greece and Portugal struggling to control their government finances—while emerging markets sit on mounting foreign-exchange reserves—many worry that ground zero for the next big global financial crisis could be somewhere in the wealthy West.

Given that Asia now accounts for almost 40 percent of global income, and an even larger share of its surpluses, it makes no sense that IMF voting rights and leadership posts are still dominated by the United States and Europe.

Europe, however, is resisting change fiercely, especially small, rich nations such as Belgium, the Netherlands, and the Nordic countries. They see their outsize role in the Fund—each controls more votes than China—as a key affirmation of their continuing relevance in a growing world. Curiously Asia, which ought to see the enhancement of its Fund voting shares as a milestone, is deeply ambivalent.Perhaps the biggest question facing the Fund today is how to assert greater influence over the big players like the United States and China, whose massive borrowing and lending activities pose risks no one can easily assess.