The Future of the IMF

The arrest and resignation of Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), has captured headlines for days. One of the http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifconsequences of this sudden turn of events has been the clear surfacing of several candidates from developing nations, as well as strong claims from some emerging economy policymakers that Europe should cede its traditional right to the position. An English bookmaker made Turkey’s Kemal Dervis the favourite in early betting, with India’s Montek Ahluwalia not far behind in the odds.

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What Do Investors Know?

Globalization has flattened the world in some ways, but not in others. Many years ago, economists Martin Feldstein and Charles Horioka observed that national savings and investment rates are highly correlated, indicating that investors tended to keep their money at home, rather than diversify globally, even without restrictions on capital flows. Subsequently, other economists documented this ‘home bias’ for portfolios of shares—investors tilt toward holding shares of their own country’s companies.

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The G20 Makes Progress

The recent G20 meetings in February and April have showed that the G20 works. The achievements are not dramatic, but the forward progress is visible, if at a measured pace. Last year, the US had been pressing for rebalancing—basically asking mostly China, but also other current account surplus countries, to adjust their macroeconomic policies to increase their domestic demands and reduce their relative export focus. Those countries argued that the US’s own macroeconomic policies—fiscal and monetary—needed to adjust drastically. Rather than drifting into confrontation and stalemate, this issue has been tackled relatively effectively by the G20.

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