The Unique Nature of the Responsibilities of the IMF

Justice without strength is helpless,
strength without justice is tyrannical....
Unable to make what is just strong,
we have made what is strong just.
 Pascal, Pensées [1670]

Introduction

The memories of the economic, political, and social turbulence of the 1930s and the enormous suffering as well as the cost associated with its unfortunate aftermath, the Second World War, provided the impetus for establishing an order in the community of nations that would prevent the recurrence of such painful episodes. On the international front, the efforts that underpinned this order led to the creation of the United Nations and its numerous specialized agencies. In the economic area, the order was based on a framework laid out and agreed upon at the Bretton Woods Conference, which established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), also known as the World Bank.1

Much has been written about the gestation and development of the international consensus that has made possible a globally peaceful and relatively harmonious evolution of the world economy for nearly half a century.2 Hence, there is no need here to add to what is already a long list of publications mainly historical in nature. It is worth recalling, however, that history conveys that it is only after severe crises and widespread conflicts that fertile grounds are found for the gathering of international consensus on norms of behavior to avert their re-emergence. As has been often pointed out,3 there have been repeated attempts at laying down internationally agreed principles and conventions to govern economic relations among politically independent nations. Nevertheless, not much was attained by way of formal understandings until the establishment of what came to be known as the Bretton Woods regime. Bretton Woods constituted the first formal international agreement on a code of conduct applicable for economic transactions among the countries that had subscribed to it.

In these times of profound change in the international environment, we may well be at a juncture that offers a unique opportunity to demonstrate that a constructive international consensus can also be gathered without the impetus of a global crisis or serious conflict. For the last few years, remarkable and unexpected events have been under way--indeed, they are yet unfolding--in the world economic and political scenes that carry the potential of altering irreversibly the setting in which the post-World War II order was conceived and operated. I am referring, of course, to the reforms being undertaken by countries formerly with centrally planned economies to establish systems of economic organization based on markets. Account must also be taken of the advances toward economic integration in Western Europe, a process that, after many years in the making, has now taken on a strong and virtually irreversible momentum.4 And with regard to the developing countries--many of them still struggling with external debt difficulties--the international community continues to face the challenge of helping them set their economies on paths of sound and sustained development and growth.5

All of these are obviously complex tasks, but tasks the accomplishment of which can be greatly assisted by the existence and implementation of an agreed set of rules of the game. The present, then, is a good point in time to reassess the code of international economic conduct that has developed over the last four and a half decades. Undertaking such a broad reassessment is an ambitious endeavor, however, and it will be important to avoid the trap of reaching beyond one's grasp. In this spirit and for obvious reasons of interest and experience, I will focus in this paper on only one aspect of the code of conduct that I believe to be critical--that is, the norms that have guided the conduct of financial and exchange transactions among countries, as they have been presented in the original Articles of Agreement of the International Monetary Fund and their subsequent amendments. In the process, I will bring out the unique nature of the responsibilities given to this institution and demonstrate the importance of preserving such uniqueness.

The plan of the paper is as follows: First, I will outline the fundamental characteristics of the IMF. Given these characteristics, it will become apparent that economic policy surveillance is at the heart of the institution's responsibilities, a subject to which I will turn next. There are, of course, other institutional responsibilities for the IMF to discharge, but I will contend that these either constitute modalities of surveillance from other perspectives or are equivalent to the exercise of surveillance at a second remove. This line of reasoning will open the way for examining next the direct link between surveillance--international monitoring of national economic policies--and conditionality--the policy conditions that members are expected to observe in order to have access to IMF resources. In a constantly changing world economic environment, it is inevitable that risks and dangers will arise to compromise, if not threaten, certain fundamental features of the institution, and these will also be discussed in the paper. Some of those risks and dangers have to do with the diverse aims of economic policy, as well as with the specific characteristics of the situations in which such policy has to be implemented; accordingly, the operation of the code of conduct in diverse circumstances will be examined from both of these perspectives with a view to ascertaining the opportunities that may have arisen to enhance the effectiveness of internationally agreed norms. Grounds will thus be laid for discussing the implications of experience for the central functions of the institution; from these grounds, a set of ideas and proposals will be presented for keeping the activities of the IMF centered on a path that ensures the continuity of its institutional uniqueness. A summary of those ideas and a number of concluding observations will then complete the paper.

Before discussing all these issues, however, I should state an important caveat. I will resort to the hard-to-rival pen of Michel de Montaigne and use his very words. Like him, I say, "I have here only made a nosegay of culled flowers, and have brought nothing of my own but the thread that ties them together" (Essais [1595], book III, chap. 12).

1 That is, the United Nations Monetary and Financial Conference, which was held at Bretton Woods, New Hampshire, from July 1 to 22, 1944.
2 The list of writings on this subject, even if constrained to the economic domain, is long, and space considerations require selectivity. But see, for example, Dam (1982) and Solomon (1982), and, for background on the IMF, Horsefield (1969), de Vries (1976, 1985, and 1986), and Southard (1979). For a fascinating account of the Bretton Woods negotiations that led to the post-World War II economic and financial order, see Keynes (1980a and b).
3 Early efforts to establish principles and conventions of international economic behavior have been examined, inter alia, by Bloomfield (1959), Dam (1982), and Eichengreen (1985, 1989a and b, 1990, and 1991). Here again, for an insightful account of discussions, this time on the post-World War I economic and financial order, see Keynes (1971, 1977, and 1978). See also Guitián (1992d).
4 The reforms in previously centrally planned economies have rapidly prompted a wealth of studies searching for an efficient model of the reform process. See, for example, Blanchard and others (1991), Dornbusch (1991), Fischer and Gelb (1991), Guitián (1991 and 1992a), Hinds (1990), Collins and Rodrick (1991), Peck and others (1991), and Williamson (1991a, b, and c). Events have also been moving rapidly and remain fluid in the former U.S.S.R. A recent discussion from an economic standpoint will be found in Havrylyshyn and Williamson (1991). For recent developments in the process of economic and monetary integration in Western Europe, see Guitián (1988 and 1992c) and Ungerer and others (1990). In the period during which this paper was under preparation, important additional decisions have been made by the European Community countries in their summit meeting in Maastricht, Netherlands, on December 9-10, 1991, which included an agreement to establish a single currency by the end of the decade.
5 I have examined some of these other events from the standpoint of the importance of a code of conduct in recent papers, where an extensive list of other sources can also be found: see Guitián (1992b and c).

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