The years prior to the global financial crisis were a peculiar period for the International Monetary Fund (IMF). It was struggling to define its role and justify its existence even as trouble was brewing in countries it would later help to rescue. To understand the Fund’s current strengths and weaknesses, a look back at this era is highly illuminating. Three major developments for the IMF, spanning the years 2005–2009, are chronicled. These developments merit extensive exploration for the insight they provide on controversies that have flared over the IMF’s role in the euro-zone crisis, the greatest the Fund has ever faced, and the resulting erosion of its credibility an independent, neutral arbiter and fixer of economic problems. Critics often blame the IMF’s governance problem, namely European dominance over the Fund’s board and management. But that is only part of the backdrop to the IMF’s travails in the euro zone; a more informative picture emerges from a full account of pre-crisis events. Whether the proposed measures would improve the IMF's performance could obviously be debated, but the hope is that the historical information provided helps inform the public debate about how to enhance the IMF’s muscularity, so that it wields power and authority commensurate with the strength and vagaries of global markets. The need for such an institution has never been more manifest.
Over Their Heads: The IMF and the Prelude to the Euro-zone Crisis
CIGI Paper No. 60