Recurring crises in the international monetary system are raising calls for a new system that is designed to meet the challenges of a global economy. Many believe that the vestiges of the IMF created by the Bretton Woods Agreement are no longer adequate to insulate the world’s economies from disruptions in a single country or small group of countries.
Meanwhile, leaders of many developing and newly industrialized countries are bemoaning what global capital has done to their economies. Although some call for the elimination of the IMF and its replacement by institutions not yet clearly defined, more likely is revision of the IMF and its policy prescriptions. Efforts have already been made to develop internationally accepted codes of good practice to allow comparisons of countries’ fiscal and monetary practices. Countries have also been encouraged to be more open and clear regarding their financial policies. Transparency on the part of the IMF is also being increased to instill greater accountability on the part of its leadership. The IMF also is increasing its efforts at surveillance of member nations’ macroeconomic policies and increasing its abilities in the area of financial-sector analysis.
Yet orderly ways must still be found to integrate international financial markets so that risks are better managed. Moreover, the private sector must become involved in the prevention and resolution of financial crises. Policy makers are concerned with the way money floods into developing economies when growth is strong and then just as quickly heads for the exits at the first sign of trouble. Furthermore, some argue that because the IMF bails out debtor countries, private-sector banks do not exercise adequate caution when loaning money in risky situations: After all, the IMF will be there to pay off the loans of debtor countries. Greater cooperation and understanding among the IMF, private-sector banks, and debtor nations are needed.