VZCZCXRO0503
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0143/01 0370913
ZNR UUUUU ZZH
R 060913Z FEB 08
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 4832
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 5856
RUEHBJ/AMEMBASSY BEIJING 2741
RUEHBY/AMEMBASSY CANBERRA 2111
RUEHHK/AMCONSUL HONG KONG 6347
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 SINGAPORE 000143 
 
SIPDIS 
 
STATE PASS TREASURY FOR RKAPROTH AND RDOHNER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD EINV SN
 
SUBJECT: IMF REFORM: ECONOMISTS, OFFICIALS AT SINGAPORE CONFERENCE 
OFFER ASIAN PERSPECTIVES 
 
 
¶1.  (SBU) Summary:  Asian economists and officials attending a 
Singapore conference agreed that the International Monetary Fund's 
(IMF) voting and board structure must change to become more 
representative of Asia's dynamic economies.  Despite low 
participation by Asian officials and regulators in financial sector 
programs, they want the IMF to improve its expertise in financial 
sector issues in both developing and developed countries -- 
especially in the context of current market turmoil.  Many Asian 
players, particularly the Indonesians, criticize the inability of 
the ASEAN and ASEAN plus 3 (China, Japan, and South Korea) groupings 
to effectively force neighbors to address underlying macroeconomic 
and financial sector problems.  Encouragingly, they favor enhanced 
links between their own regional economic integration initiatives 
and greater use of the IMF's macro-economic surveillance programs 
and expertise.  End summary. 
 
Asian Views of IMF's Future Role 
-------------------------------- 
 
¶2.  (U) Senior Asian economic policy makers and academics held a 
closed-door, off-the-record discussion on "Asian Perspectives on the 
Future Role of the IMF" that the Lee Kuan Yew School of Public 
Policy in Singapore and the Friedrich-Ebert-Stiftung Foundation of 
Germany hosted on January 18.  Approximately 50 high level 
representatives from central banks, finance ministries, development 
institutions, think tanks and universities across Asia, as well as 
from the United States and Germany, attended the full day of events. 
 Many participants had spent at least part of their career working 
at the IMF.  This conference follows similar meetings in Cape Town 
and Buenos Aires held last year to solicit regional views on IMF 
reforms. 
 
Support for Quota Reform 
------------------------ 
 
¶3.  (SBU) Regional participants concurred that reform of the IMF's 
governance structure is vital to give the institution more 
legitimacy in Asia.  Except for the German representative, all 
participants agreed that the Europeans must give up a significant 
share of their quota and board seats in order to make the Fund more 
broadly representative of its membership.  (Note:  Quotas represent 
the share of the IMF's capital that countries must contribute, and 
also play a role in calculating the amount of resources a country is 
eligible to withdraw from the IMF for balance of payments support in 
an emergency.  The 27 members of the European Union currently have 
31 percent of the quota compared to the United States at 17 percent 
and Asian countries, which have a combined quota of 17.6 percent 
(see Table 1).  The Europeans hold 8 of the 24 seats on the IMF 
executive board.  End note.) 
 
Table 1. IMF Quotas for Selected Countries and Regions 
 
United States  17.08          Germany          5.98 
Japan           6.12          United Kingdom   4.94 
China           3.72          France           4.94 
India           1.91          Italy            3.24 
Korea           1.35          Netherlands      2.37 
Advanced countries (26)       60.51 
--excluding U.S. and Japan    37.32 
European Union (27)           31.60 
Developing Asia (32)          11.52 
Developing Asia plus Japan    17.64 
 
Source: Petersen Institute for International Economics Policy Brief 
07-01, February 2007. 
 
Rich Countries Disengaged From the IMF? 
--------------------------------------- 
 
¶4.  (SBU) Regional participants were critical of the quality of IMF 
staff, especially on financial sector issues, although they 
acknowledged that the Fund's "best and brightest" might be better 
utilized in "crisis" areas in other parts of the world.  Many voiced 
the perception that rich countries are disengaged from the IMF. 
They accused rich countries of allowing the Fund to criticize 
smaller/poorer countries without heeding its advice themselves. 
They argued that the disengagement on developed country issues has 
resulted in a loss of expertise among Fund staff in cutting edge 
financial and economic issues.  Some questioned, for example, why 
the Fund has not predicted the U.S. subprime crisis and why Fund 
staff were not out front telling the United States and Europe what 
to do about it.  (Note:  Since the conference, the IMF's managing 
 
SINGAPORE 00000143  002 OF 002 
 
 
director has vocally called on the United States and other countries 
with the requisite capacity to expand fiscal spending to offset a 
global slow down.  End note.) 
 
IMF Links to Regional Economic Initiatives 
------------------------------------------ 
 
¶5.  (SBU) Many of the regional participants, led by the Indonesians, 
were critical of their own ability to do proper macroeconomic 
surveillance as called for under the ASEAN or ASEAN plus 3 
initiatives.  They recognized that the non-confrontational approach 
known as the "ASEAN way" had led to low quality discussions with 
very little capacity to rein in poor economic performers.  They also 
acknowledged that the limited number of well-trained regional 
economists makes it difficult to properly staff a regional 
institution to replicate the higher quality assessment provided by 
IMF surveillance programs, most notably the annual Article IV 
review. 
 
¶6.  (U) Participants noted that ASEAN plus 3 countries had taken 
steps to address these shortcomings.  In particular, ASEAN plus 3 
has invited the IMF to become more involved in regional economic 
integration efforts in two ways.  First, since mid-2005, IMF staff 
have prepared and presented economic overviews for the ASEAN plus 3 
Finance Ministers Deputies Meetings.  Second, participants in the 
Chiang Mai Initiative (bilateral currency swap arrangements) made 
disbursement of 80 percent of the swap amount contingent on the 
borrowing country's participation in a sanctioned IMF stabilization 
program.  Conference participants were eager to maintain these 
linkages and to look for other areas where IMF expertise could 
inform regional discussions and programs.  Some suggested IMF 
participation in a discussion on regional exchange rate 
coordination. 
 
Comment 
------- 
 
¶7.  (SBU) Asian officials and economists remain ambivalent about the 
IMF and the role it should play in the region.  The public and 
politicians in the region continue in many cases to vilify the IMF 
as the cause of the hardships brought on by the Asian financial 
crisis in 1997-1998.  On the other side, economic officials and 
regulators argue in favor, usually more in private than in public, 
of retaining, if not bolstering, the IMF's technical advice and 
expertise.  Even though Asia would be a primary beneficiary of more 
representative quotas at the Fund, Asian officials have not spoken 
up publicly in support of reform.  Nor have they pushed the 
Europeans to give up quotas and board seats to make room for more 
Asian participation.  Asian policy makers say they want more 
technical financial sector advice, but only 17 percent of Asian 
countries have participated in the IMF's Financial Sector Assessment 
Program (FSAP), the premier program in the field -- well below the 
49 percent African participation rate.  While IMF linkages to ASEAN 
plus 3 programs are encouraging, Asian economic officials need to 
show more leadership and engagement if they want a reformed IMF to 
meet their needs. 
 
HERBOLD