Reforming the IMF

Can it serve as an "international lender of last resort?"

Research output: Journal PublicationsReview articleBook reviewpeer-review

Abstract

A series of financial crises in emerging market economies during the 1990s have been a catalyst for efforts to strengthen the international financial system. Indeed, much has been done to strengthen the architecture of the international financial system, both in terms of crisis prevention and crisis management. The powerful G-7 countries have made it clear that the International Monetary Fund (IMF) plays a significant role in shaping the new global financial architecture. However, is the IMF up to the task? This paper argues that despite its many limitations, the IMF is an important institution that can strengthen the global financial system. The paper begins with a discussion of what the IMF is and what it is not This will help put in perspective the nature, mandate, and role of this much-misunderstood global institution. The second section reviews some of the recent reforms the IMF has introduced to effectively carry out its new function. While these reforms are hardly revolutionary, they nevertheless, will significantly strengthen both the domestic and international financial system. The third section examines the Achilles heel of the IMF-that its policies promote moral hazard. How effectively have the IMF reforms addressed this? It is argued that although the problems associated with moral hazard can never be fully eliminated, the IMF reforms will greatly mitigate the problem. It is very likely that for the foreseeable future, the IMF will continue to serve as an informal international lender of last resort.

Original languageEnglish
Pages (from-to)89-104
Number of pages16
JournalGlobal Economic Review
Volume31
Issue number2
DOIs
Publication statusPublished - 1 Dec 2002
Externally publishedYes

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IMF
financial system
reform
International Monetary Fund
Lender of last resort
market economy
financial crisis
management

Cite this

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Reforming the IMF : Can it serve as an "international lender of last resort?". / Sharma, Shalendra D.

In: Global Economic Review, Vol. 31, No. 2, 01.12.2002, p. 89-104.

Research output: Journal PublicationsReview articleBook reviewpeer-review

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