The International Monetary Fund is shifting its priorities to meet new economic realities. The recent economic crisis demonstrated that  liberalization of the capital market which the IMF policies were based on do nothing to guarantee financial and economic stability and predictability. Such a drastic shift in priorities suggests the coming into being of a new IMF under the leadership of Dominuque Strauss-Kahn.

Back in 1997, the IMF exerted tremendous efforts to push countries towards liberalization of capital markets. These efforts received unconditional approval from Western finance ministries. However, the ensuing crisis in South East Asia demonstrated that the migration of capital to developing countries leads to economic overheating and might weaken the economies of the donor countries. Judging by the year 2008 in the US, which marked that start of a global crisis, a liberal capital market can be the source of many economic problems due to the so-called real estate bubble which is the result of poorly managed fiscal and monetary policies.

South East Asia is attracting capital again as a region that promises maximum profit at the moment. The sluggishness of EU and American economies is forcing EU and US finance ministers and central bank chiefs to intervene by ramping up regulatory functions. As becomes clear from the experience of some European countries, control over the movement of capital may serve as an effective instrument to tackle the crisis. This new principle was confirmed at IMF’s recent session.

Pavel Kudyukin, an expert from the Higher School of Economics, comments.

"As compared to liberalization, state regulation is neither better, nor worse. At different periods state control over the economy intensified or shrank depending on the circumstances. The recent crisis laid bare the need for new regulatory mechanisms. This is rather challenging as the old methods have become obsolete and the new ones are yet to be devised."

Apparently, economic experts will have to suggest a new method for striking a balance between free and regulated markets not within the bounds of one particular economy but amid globalization, which makes for more of a challenge. The idea of international financial regulation and a tax on financial speculation which would be applicable to all countries looks ever more appealing and is bound to be on the agenda of key financial bodies for years.

Experts expect the IMF to shift in the direction of backing the production sectors in countries under its wing and coming to regard social spending as investment in the future. This might present the chance to overcome social inequality which is the main cause of instability. Meeting at the Fund’s spring session, IMF officials acknowledged at last that employment and social equality should take center stage on the global political agenda.

Voice of Russia