Asian Regional Policy Coordination

This paper addresses two central questions for Asia and the world: (1) What is the purpose of Asian regional policy coordination going forward? (2) Will Asian regional policy coordination substitute or complement global policy coordination? The paper examines the potential coverage and content of such policy coordination, what is meant by Asia in this context, and how Asia fits in with global policy coordination processes. I address three related aspects of Asian regional policy coordination: macroeconomic policies, reserve management, and crisis management. I conclude that while the countries in the Asian region have not completely exploited the scope for regional policy coordination, more ambitious efforts focused on close integration are not likely to bear fruit, in particular, if they are conceived and promoted under the banner of Asian exceptionalism. These conclusions are based on two main considerations: First, Asian economies differ, and will continue to differ, sufficiently in size and stage of development such that it is difficult to conceive of a successful voluntary blending of their interests. Second, the central lesson of the global financial crisis and its current European coda is that global economic and financial integration has advanced sufficiently that countries can run but they cannot hide individually or in sub-global groups of countries.Asia, Emerging Asia, Regional Arrangements, International Monetary Fund, Group of Twenty (G-20), Global Financial Safety Net, Special Drawing Rights, Chiang Mai Initiative, Chiang Mai Initiative Multilateralized, Current Account Adjustment, Exchange Rates

Postponing Global Adjustment: An Analysis of the Pending Adjustment of Global Imbalances

Halving the US current account deficit as a share of GDP is likely to impose a burden of $2,350 per capita on the United States, which explains why US policymakers want to postpone adjustment. The rest of the world relies on the economic stimulus of a widening US external deficit, which explains why they are not eager to see global adjustment. The paper examines three scenarios of exchange rate adjustments, calls on the Federal Reserve to take more account of the external deficit in its words and policy actions, and familiarly notes the need for US fiscal adjustment as part of an efficient adjustment process. Complementary policies are required in the rest of the world. The paper discusses the pattern of recent international capital flows and proposes an international reserve diversification standard to remove some of the uncertainty about the management of foreign exchange reserves.Monetary policy, fiscal policy, current account adjustment, open economy macro, central banks and their policies, foreign exchange

The G-20 and International Financial Institution Governance

This paper addresses the agenda for the Group of Twenty (G-20) leaders' meeting in Seoul, Korea in November 2010. This is an opportunity and challenge for Asian leaders in particular. Their test will be, first, to demonstrate that they can responsibly advance economic recovery. They must also deliver on institutional reform, in particular of the International Monetary Fund (IMF). Author Edwin M. Truman advocates a substantial expansion of the IMF's role as lender of last resort that is integrated with the surveillance role of the IMF in the form of comprehensive prequalification for IMF assistance and policy advice and a substantial increase in the IMF's financial resources. Truman also propose an approach to meaningful reform of the distribution of IMF quotas along with limiting European seats on the IMF executive board.International Monetary Fund, Group of Twenty G20, China, Korea, Asia, special drawing rights, economic growth, exchange rates

On What Terms Is the IMF Worth Funding?

In the first decade of the 21st century the International Monetary Fund (IMF) faced crises of legitimacy, relevance, and budgetary finance. It now confronts what likely will be the worst global recession since World War II, potentially huge demands for its financial assistance with limited resources, and calls for it to play a more central role in the international financial and regulatory systems. At the same time, the incoming Barack Obama administration must decide what to do about the modest package of IMF reforms that was completed in the spring of 2008. The package requires US congressional approval to go into effect. This paper reviews the recent, slow progress on IMF reform and makes recommendations to the Obama administration against the background of that record, the emerging global recession, and continuing financial turmoil. I recommend that the IMF package be reopened to include a doubling of IMF quotas and an amendment that will permit the Fund to swap special drawing rights (SDR) with major central banks to finance its short-term lending facility. I also recommend a special allocation of 50 billion SDR. If these proposals are turned down by the G- 20 at its meeting in April 2009, I reluctantly recommend that the Obama administration seek congressional approval of the IMF package as it now stands because a failure to do so would seriously undermine the Fund as a central multilateral institution.International Monetary Fund, current account adjustment, exchange rates, financial turbulence, global recession, financial supervision and regulation

Reflections

Monetary policy ; Federal Open Market Committee

Sovereign Wealth Funds: Is Asia Different?

Sovereign wealth funds (SWFs) have become a prominent feature of the international financial landscape. They are sufficiently diverse in their origins, structures, and objectives that generalizations are perilous. However, legitimate concerns have been raised in home and host countries about the management, behavior, and interactions of these funds. Many of those concerns can be addressed via increased accountability and transparency. The Santiago Principles are a good start in doing so, but Edwin M. Truman's SWF scoreboard points to areas where these principles can be improved. Meanwhile, SWF compliance must be further increased. At the same time, the Organization for Economic Cooperation and Development (OECD) effort to address concerns from the host-country side has not resulted in the erection of new barriers to that form of cross-border investment, but the OECD failed to reverse the creeping financial protectionism of the past decade. Because of their size and the source of their funding, some Asian funds are different. As a result, they will be held to a higher standard of accountability and transparency even as their government owners press for more openness to cross-border investment.Asia, international investment, OECD, Santiago Principles, sovereign wealth funds

The Outlook for International Monetary System Reform in 2011: A Preliminary Report

Reform of the international monetary system was placed on the agenda of the Group of 20 (G-20) a year ago at the initiative of the incoming French leadership of the G-20. On November 4, 2011 in Cannes, France, the G-20 leaders will announce their conclusions and agreements after a year and half of intense dialogue and debate. The discussions cover (1) surveillance of the global economy and financial system, (2) international lender of last resort mechanisms, (3) capital flows and financial pressures, (4) the currency and reserve asset system, and (5) governance of the international monetary system. While the governance issue, in the form of governance of the International Monetary Fund (IMF), is not explicitly on the agenda of the G-20 leaders, the resignation of Dominique Strauss-Kahn as managing director of the IMF has placed it on the agenda with high priority. Based on the evidence to date, Truman expects that by the end of 2011, the result will produce a barely passing grade on substance—below B on the inflated scale of grades today—but an A for effort. As long as the process achieves the A for effort via a thorough examination of the full range of reform issues, the shortfall on substance is not crucial, and he welcomes being proved wrong on substance. More would be desirable, but the international monetary system will continue to evolve.

Sovereign Wealth Funds: Threat or Salvation?

This study examines the role of sovereign wealth funds (SWFs) in the global economy and financial system. Sovereign wealth funds are not a new phenomenon in international finance. Governments of a few countries have used similar entities to manage their international financial assets for several decades. Moreover, countries have always held international reserves, and government-owned entities have made cross-border investments for many years. Sovereign wealth funds or their equivalent pose profound issues for the countries that own them with respect to macroeconomic policy and the potential for corruption. They also raise issues for countries that receive SWF investments as well as for the international financial system as a whole because government ownership introduces potential political and economic power issues into the management of these cross-border assets. This study traces the origins of SWFs. It describes the issues raised by these large governmental holdings of cross-border assets for the countries that own them, for the host countries, and for the international financial system. The study lays out what is known about the 50-plus SWFs of various countries. Some countries have more than one such entity, and a sample of government-managed pension funds is included in this analysis because they raise most of the same basic policy issues. Using publicly available information that is provided on a systematic basis, the author has previously developed a "scoreboard" for these funds involving a number of elements grouped in four categories: structure, governance, transparency and accountability, and behavioral rules. The 2008 edition contributed to the development of a set of generally accepted principles and practices, the Santiago Principles, for SWFs by the International Working Group operating under the auspices of the International Monetary Fund. This publication presents an updated scoreboard for an expanded list of funds, evaluates the Santiago Principles, and examines current compliance with those principles. The study also examines the policies of recipient countries and the role of the Organization for Economic Cooperation and Development (OECD) investment codes. Finally, the study discusses the evolving role of SWFs in the context of the global economic and financial crisis and its aftermath and will make recommendations for the policies of countries both managing such funds and those that expect to receive investments from them in the future.

The International Monetary Fund and Regulatory Challenges

The International Monetary Fund (IMF) plays a substantial regulatory role in the international monetary and financial system. The IMF has been assigned a formal regulatory role in a limited number of areas such as obligations covering exchange rate policies. The Fund has a broader informal regulatory role derived from the voluntary consent of its members such as in surveillance over members’ financial sector policies and international payments imbalances. The IMF’s regulatory role is unlike that of its member governments within their own jurisdictions. The Fund’s formal and informal regulation must be constantly nurtured and renewed via peer-review processes.IMF, Articles of Agreement, regulation, Special Data Dissemination Standard (SDDS), General Data Dissemination System (GDDS), Bretton Woods, WTO, special drawing rights (SDR)

G-20 Reforms of the International Monetary System: An Evaluation

At the recent Cannes G-20 summit, the international monetary system (IMS) reform agenda, along with a number of other important issues, was hijacked by the European crisis. Nevertheless, the G-20 countries and various international institutions conducted an intensive process of review and discussion of the IMS via conferences, working groups, and reports. A year ago French President Sarkozy and other French government officials set the agenda for IMS reform to include five elements: surveillance of the global economy and financial system, the international lender-of-last-resort mechanisms (global financial safety nets), the management of global capital flows, reserve assets and reserve currencies, and IMS governance. Little progress was made on most of these topics. On surveillance there was only one surprise in the form of commitments by a few countries to allow their automatic stabilizers to operate in the current slowdown; on the lender-of-last-resort issues, there will only be marginal steps forward; and on the management of capital flows, the progress that has been achieved over the past several years has been loosely codified, which is a substantive achievement. Overall, the G-20 summit at Cannes resulted in some useful mutual education but not much in terms of concrete accomplishments.