The last five years have been unusually benign for the world's financial system. In marked contrast to geopolitics, in turmoil since 9/11, the international economy has endured nothing so dangerous. The result has becalmed the International Monetary Fund as the world's lender of last resort. The fund was envisaged by the architects of the Bretton Woods postwar structure as a financial watchdog and backstop. More recently the fund has focused on development, in controversial fashion. Yet changing circumstances threaten the institution's relevance: what good is a watchdog that never barks?

In an attempt to modernise the IMF's role, member governments will debate reform proposals at the fund's annual meeting in Singapore this weekend. The shape of the reforms is two-fold: to increase the fund's surveillance of global financial imbalances, including those of rich economies, and to democratise its governance structure. Both reforms are laudable as far as they go - which is not far enough. The reforms on the table in Singapore will fail to give the IMF the new impetus it needs.

The current governance structure is a relic of the postwar era, with power concentrated in the hands of the US and Europe. That should change, with larger developing countries such as China, Turkey and India being given a bigger say. But that alone is not enough - the IMF's main clients are low-income countries, mainly in sub-Saharan Africa, and they need a greater voice in the fund's operations. The fund's "constituency system" should be overhauled so that Africa's varying needs and geographical differences are better represented.

No matter how democratic the IMF becomes, without a defined role it is in danger of becoming irrelevant. As a source of research and advice, the IMF remains an important international institution. Yet the idea that it can blow a whistle on the imbalances of developed countries, especially the US, is extreme wishful thinking. The IMF should stick to what it does best - financial surveillance and macroeconomics - and stay away from the micro-management that sees it too often overlapping with the World Bank and national donors.

The most important reform the IMF can undertake is to align its advice on fiscal policy with poverty reduction goals, so that low-income countries are not caught in a bind such as Zambia's, where IMF loan conditions blocked the employment of thousands of teachers. A smaller, more focused fund that listens to its clients would do a world of good.



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