In addition to its most familiar role, in providing troubled countries with financial assistance in return for commitments to abide by the strictures of the so-called Washington consensus or its European "troika" equivalent, in the wake of criticisms that the fund failed to spot and prevent the 2008 financial crisis, the IMF has sought to enhance its role in pre-emptive surveillance of the world's economy. Over the past year, the IMF has taken on a series of new roles in analyzing and monitoring the global economy and in highlighting potential risks of contagion and spillovers from one country or region to others and for the financial system as a whole.
This new foray is significant. It represents a new role for the fund and one that is likely to evolve and expand over time. While complicated, it basically involves an expansion of the fund's role from assessing individual countries' economic policies under a fairly rigid set of criteria to one in which the IMF assesses the broader impact of a wide range of policy choices on its neighbors and on the rest of the world.
In the past, the United States stridently sought to have the IMF include a determination in its annual country assessment as to whether a country was manipulating its exchange rate to the detriment of others and global economic stability -- a means to challenge China's foreign exchange policy without doing so directly. But the United States has been far less inclined to allow the fund to assess whether a country's domestic policies more broadly have a similar spillover impact across borders. Earlier this year, after years of contentious debate, the IMF voted to take on this new mandate, and has now embarked on a new series of multilateral surveillance projects. U.S. resistance to this effort was largely born of the potential risks to the country being accused of causing far-reaching harm, given the size and scope of the U.S. economy and financial system.
Just as China fought desperately for years to avoid having its currency being classified as being in "fundamental misalignment," America may now find itself seeking to ward off accusations that the country's financial sector, fiscal cliff, and tax policies are not only fodder for domestic debate, but potentially international condemnation as well.
The end of the IMF-G-20 tandem? In the autumn of 2008, the G-20 rose from relative obscurity to become the premier economic and political forum in which global leaders and finance ministers grapple with the most daunting issues of the day in an organized and structured forum. The official communique at the close of the Pittsburgh G-20 summit in September 2009 declared that "the G-20 [is] to be the premier forum for our international economic cooperation." This represented a shift from the previous focus on the G-7, where China, India and other rising powers were notably absent. The United States was an early leader at the G-20, however unwieldy it may be, and embraced its newly central role.
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