IFIACInternational Financial Institutions Advisory Commission
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First, the IFIAC report paints a very misleading picture of the impact of the IFIs over the past fifty years.
In his March 8 article on the IFIAC report in the Financial Times, Martin Wolf concluded that "on most measures, the IFIs have been a staggering success." The bottom line is unambiguously positive, but the IFIAC majority portrays a negative picture that badly distorts reality.
Second, the recommendations of the IFIAC majority would severely undermine the ability of the IMF to deal with financial crises and hence would promote global instability.
The problem is that the IFIAC majority would authorize the Fund to lend only to countries that have prequalified for its assistance by meeting a series of criteria related to the stability of their domestic financial systems.
For example, the IFIAC model would have prohibited the Fund from lending to any of the East Asian crisis countries in 1997-98.(4)
In contrast, the CFR report would retain the fiscal and monetary policy conditionality necessary to underpin improvements in the balance of payments in crisis countries, and it would avoid the "all or nothing" flaw of the IFIAC proposals by permitting IMF financial support to countries of systemic importance.
The IFIAC'S radical proposal is based on the view that "moral hazard" is the dominant problem facing the global financial system.
Professor Jeffrey Sachs, a member of the IFIAC majority, presented its views on these development issues to the Executive Board of the IMF on March 21.
I believe that neither the CFR nor the IFIAC reports address some of the key problems still facing the international monetary system, as indicated in the additional views that several other participants and I appended to the CFR report:
* the IMF needs to guide emerging market economies on how to manage their flexible exchange rates, since very few will (or should) float freely despite the advice of most academics (and the IFIAC report) to do so;
Calomiris argues that such a policy agenda would be the best form of "aid." He "also supports the Meltzer Commission's (the name commonly given to the IFIAC) recommendations for overhauling the IMF and other international financial institutions (IFIs) to make them more market friendly.