King calls for IMF revamp

Former BoE governor suggests replacing IMF’s executive board with International Monetary and Financial Committee; notes fund may have strayed too far into political territory
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The former governor of the Bank of England (BoE), Mervyn King, has called for the disbandment of the International Monetary Fund's full-time executive board, instead suggesting it could be replaced by the Fund's International Monetary and Financial Committee.

Speaking to Central Banking journal in an article published on August 24, King was critical of the fund's management structure, claiming the current framework is "outdated". The former chairman of the Global Economy Meeting of the Bank for International Settlements said having full-time executive directors representing constituencies or currencies "made more sense" in a time when policy-makers travelled by "ship", referring the time when the Bretton Woods institutions were set up in the first half of the 20th century. "That is not true now," he said.

Getting rid of the full-time board – which is currently making the organisation "sluggish" and "bureaucratic" – King said, would make the fund more "effective and responsive to change".

The International Monetary and Financial Committee – currently chaired by governor of the Bank of Mexico, Augustin Carstens – could replace the board, King suggested.

"It could easily meet five or six times a year, twice in the spring and autumn, with finance ministers present as they are now, and then two or three times a year with their deputies flying in for a day or two to represent their countries," King says.

The whole arrangement, according to King, would be "wholly manageable" and a lot more "streamlined" than the current arrangement. This would free up time for the fund's managing director, currently Christine Lagarde, to focus on other duties.

Has the IMF outlived its lifespan?

King views the IMF as the only institution capable of rebalancing the global economy – where there is an imbalance between export-led economies such as China and Germany and domestic spending is relatively low versus other nations such as the US and much of the rest of Europe.

But the BoE veteran was also quick to challenge the IMF's recent interventions, indicating the organisation had lost a lot of credibility in many countries across the globe. "It's been engaging too much in giving political support to the euro. As a result, the people in Latin America and Asia have lost faith in the IMF," King said, adding he thinks Asian nations "will never go back" to the fund after their experience during the Asian Financial Crisis.

Explaining the fund's involvement in Europe, King was concerned the stance pursued had been "far too close to the EU orthodoxy" and, as a result, had come off looking like it was straying into political territory.

"Its role is not to be political," King said. "The only way it is going to be effective is by providing useful, helpful, technocratic advice better to enable politicians to achieve their objectives, to get them to realise and understand that a degree of cooperation will make everyone better off."

As a result, the former BoE governor suggested the fund concentrate on trying to get countries to realise they will have to "rebalance their own economies". "The only way that's likely to happen is if they have confidence other countries will rebalance their economies too," King said.

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