Reforming International Financial Governance

This paper outlines the contemporary challenges for International Monetary Fund (IMF) reform. The chapter argues that market principles and disciplines have been abrogated systematically by IMF policy makers whenever the unimpeded operation of markets has failed to deliver profits to the international banks and the elites in the developing countries. In this sense, the IMF should be understood as behaving most consistently not in its commitment to the allocative efficiency of markets, but rather in its commitment to furthering the interests of key groups of economic and political elites. One of the principal challenges in reforming the IMF and the World Bank is therefore to embed, not to re-embed, important market principles and practices; specifically, to let the market allocate losses among borrowers and lenders when loans go sour – a market discipline that has been notably absent from our system of global financial governance for several decades at least. The paper proposes a number of reforms of the IMF which would increase its legitimacy and representativeness.