The Battle for Credibility
I’m just wondering who has less credibility at this point, the IMF and their bungling of the last major global financial crisis (’97) or the Bush administration and <insert list here>. FT reports a little bit of this skirmish over credibility:
IMF rejects criticism over global turmoil
By Chris Bryant in Washington and George Parker in London
The International Monetary Fund on Thursday rejected claims that it should have better foreseen the onset of a global financial crisis, saying the US refused to adopt its programme to improve the stability of national economies.
Dominique Strauss-Kahn, IMF managing director, noted that the US had initially declined to sign up to the Financial Sector Assessment Programme, a joint IMF-World Bank initiative established in 1999 to help alert member countries to vulnerabilities in their financial systems.
About two-thirds of IMF member countries chose to take part but the US did not agree until last year and its evaluation is not due to begin until 2009.
“What is interesting is that, until a few weeks ago, the US had refused to have an FSAP,” Mr Strauss-Kahn said. “We can’t be [held] responsible for lack of supervision… owing to the fact that our main instrument to make that kind of supervision was not used in this country.”
His comments came amid a background of conflicting IMF and US views on the extent of the current economic slowdown and how best to respond to it.
The IMF this week offered a bleak outlook for US and European growth prospects during the next two years, but David McCormick, US Treasury under-secretary, later said the IMF forecast was “unduly pessimistic”.
The US Treasury also opposes an IMF call made earlier this week for government intervention at a global level to help alleviate the effect of market turmoil on world growth. Mr McCormick said there was “no consensus” on intervention among the Group of Seven.
Mr Strauss-Kahn backed away from repeating this demand on Thursday, instead commending central banks’ efforts to help alleviate the current crisis. But he said a more co-ordinated approach was necessary. “The signal given to the market is more likely to be understood if it’s the same signal, given the same way,” he said.
He added that the IMF was uniquely positioned to monitor the links between the financial sector and the real economy, thereby improving financial stability through multilateral surveillance of global imbalances, including exchange rates.
Echoing this view Alistair Darling, UK chancellor, will on Friday call for the IMF to shift its focus away from national surveillance and to create a new “multilateral surveillance department” to assess how problems in one country are likely to spill over into the international economy
Mr Darling, in a speech to the Brookings Institution, will also repeat his call for the IMF to work with the Financial Stability Forum to develop an “early warning system”, identifying risks to macroeconomic stability.
