The International Monetary Fund (IMF), at long last, is becoming a much more open institution. Gone are the days when the institution acted as a handmaiden of Western—and mainly US—economic orthodoxy. It is even throwing a gauntlet down to the mighty US Federal Reserve, questioning the effects its constant monetary boosting have on the rest of the world.
Given that IMF is the key arbiter on many key issues of global finance and economics, and hence also over global fairness and equity, this is to be greatly welcomed. Over the past decade, the reform debate had centred mainly on giving emerging market countries more voting power, by commensurably reducing the voting shares of the ‘rich’ world.
Given global economic dynamics, this adjustment is of course long overdue. One clear indication is that the Fund’s senior-level staff has become much less American and less European. But now, the first substantive consequences of these shifts are beginning to emerge.
The frontline of this fight is the IMF’s Research Department, where old school guys (yes, mostly guys) and rich country governments battle the new thinkers. Take, for example, the Fed’s recent QE3 announcement. From a US perspective, the big boost of the money supply is intended to stimulate economic growth—and therefore job creation—at home.
The extent to which these measures actually achieve that goal continues to be the subject matter of much controversy even in the US itself. What is not controversial is that these measures can have a negative impact on emerging market countries. Policymakers there would generally all agree that it is important to have a growth-oriented US economy.
But there is growing concern as to whether US authorities are not increasingly poking in the dark with their policy measures. QE3 has mainly boosted the stock market, not the real economy, and even the stock market effect is wearing off.
Either way, emerging market countries are no longer willing to acquiesce. Brazil has stepped forward to lead the defence. That has had many US policymakers upset. Perhaps not so surprisingly, it has also generated a lot of negative press about the country in US media.
Enter the now more open-minded IMF. As Boston University professor Kevin P Gallagher has documented, it has issued a whole range of reports that all cast a critical eye on the spillover effects that quantitative easing in the US has on emerging market economies.
IMF found, for example, that lower interest rates in the