The head of the International Monetary Fund, former Spanish Finance Minister Rodrigo de Rato, Thursday said the lending agency needs to have available a bigger reserve of quick loans for countries that encounter financial distress.
Mr. De Rato told an audience at the Institute for International Economics that IMF needs to be faster and more flexible in responding to future financial crises. Mr. De Rato is proposing that a new credit line be made available to emerging market countries that are pursuing sensible, growth oriented economic policies.
"Our emerging market members are telling us that our existing financial instruments [do] not always meet their needs," he said. "Especially their needs for predictability and flexibility."
With world finance ministers in Washington for the semi-annual meeting of the IMF, there is renewed worry that current large trade and financial imbalances could trigger economic crises like those that engulfed several east Asian countries in 1997 and 1998.
The biggest imbalance is the $700 billion U.S. trade deficit and corresponding surpluses that are nearly as large in China and Japan. Many experts say a dollar depreciation combined with currency revaluations in Asia are needed to correct the imbalance.
The reform proposal in part is a response to criticism that the IMF has become weak and ineffective and potentially unable to fulfill its role as the world's lender of last resort. Mr. De Rato said the world economy is performing very well and that now is a good time to put corrective measures in place.
"Financial markets are tranquil and benign, we see very important increases in oil prices with no consequences on growth and inflation, risk premiums [on developing country debt] are at their lowest levels in history, but are these conditions going to be like this forever?" questioned De Rato.
Some experts call Mr. De Rato's reform proposal too modest. It will be discussed in meetings over the next few days and then considered again at the IMF's annual meeting in Singapore in September.