International Monetary System Response of Developing Countries to Its Shortcomings

Abstract

Accumulation of reserves by developing countries to avoid borrowing from the IMF with whose governance and policies they are dissatisfied helped developing countries cope with the 2008 financial crisis. But it is argued that it was bad for the world economy. The need for reforms is accepted but the agreed reforms have not been implemented. The Fund has given priority to external balance at the expense of domestic full employment contrary to the objective of Keynes and White. Also the lack of sharing of adjustment between deficit and surplus countries, as desired by Keynes, has imparted a deflationary bias to policies. Developing countries have established facilities to provide additional BOP financing to their members. Though the amounts available under these schemes are substantial they would be insufficient in a crisis. Also the scheme do not indicate any new model of BOP adjustment. These schemes are no challenge to the hegemony of the Bretton woods institutions. They, however, are a small beginning and may be a pointer of things to come.