C. Randall Henning: (Minutes+PPT) Regional Financial Arrangements and the IMF

The minutes are based on the speech by C.Randall Henning from the Workshop on Emerging Countries in Global Financial Governance held on February 26, 2019. C.Randall Henning, Professor of International Economic Relations at American University Pitfalls and Benefits of a Multiplicity of Institutions (1) Pitfalls — Gaps and excessive overlaps in coverage — Moral hazard, including private-sector and official-sector moral hazard — Multiple avenues for private “capture” of financial rescues — Creditor “shopping” by borrowers — Delayed resort to the IMF under the “nightmare scenario” (2) Benefits — Competition in areas of positive spillover (analysis and forecasting) — Redundancy when access to one of the institutions is blocked   Conceptual Arguments

• Comparative Advantages of Globalism and Regionalism

— Drawing upon a universal risk pool — Comprehending broad possible range of country experience and problems

• Moral Hazards

— It is important to note the disparity of susceptibility to different moral hazards between the European and non-European RFAs.

• The Apex Creditor

— Any situations that involves multiple lenders poses the question of creditor seniority.

• Institutional Independence

— Reform of the executive boards would be desirable, but takes the view that it should retain political responsibility for program approvals.

• Conflict Resolution

— Informalism is essential for resolving inter-institutional conflicts.   The Regional Financial Arrangements Latin America(FLAR): The Latin American Reserve Fund takes pride in greater activity for the facility, no formal link to the IMF and uncontroversial governance. Meanwhile, it also faces several challenges and difficulties, for example, the surveillance, the consensus-oriented governance and the small size itself. East Asia(ASEAN+3 Institutions): — Japan and China do not yet have confidence that ASEAN+3 institutions can exact adjustment when necessary — Indonesia pose a challenge for the region — Invest in other elements of the safety net simultaneously, not wanting to place all their “eggs” in one regional “basket” — Create different, possibly rival, sets of BSAs — Complex is dense institutionally, but knitted together by the link Europe (ESM): — Provide stability support under strict conditionality — Cooperate closely with the IMF — Can raise funds on the capital markets and has a debt management office to handle bond issuance — Has a broad set of lending instruments and more flexibility than the IMF   Recent Evolution of the IMF — Undertake numerous reforms to its lending instruments and guidelines on conditionality — Review its lending framework, relationship with regional financial arrangements and financial facilities Conclusions and Recommendations (1) Latin American Reserve Fund (FLAR):  —Scaling up requires ensuring potential large new members against losses.   (2) East Asia (ASEAN+3): — Grant AMRO authorities to serve as full secretariat of CMIM — Pool reserves into a single account as capital or quota contributions — Publish the CMIM Agreement — IMF link appears secure for the moment   (3) Europe (ESM):  — Advancing reforms to the ESM; — Ratification would not eliminate member-state veto over financial assistance — Demand for IMF involvement by linchpin creditors continues For further details All developments regarding IMI can be followed at http://imi.org.cn/ or http://imi.org.cn/en/. For further information, contact via imi@ruc.edu.cn.

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