The world economy is on a downturn in 2008 with an abrupt end to the five-year growth cycle triggered by the unprecedented financial market turmoil’s in the wake of US market crisis. The International Monetary Fund is finding ways of regaining relevance and legitimacy in a changing world. The Federal Reserve is taking the challenge to bring some relief in the US market which has cut interest rates by three percentage points to 2.25 per cent in a record seven months and injected billions of dollars into the financial market for boosting liquidity and even bailed out an investment in unorthodox ways to restore financial stability and prevent recession in USA.

Inflation is a greater threat in developing countries, both globally integrated and other low income, all groaning under the commodity price boom, being net importers. Industrial countries including USA, less dependent on energy per unit of output, and baste food items, with their own heavy subsidy systems for their farmers, are also finding their headline inflation inching up but not yet time for monetary easing, unlike the aggressive US Fed actions to prevent a market collapse and economic depression. US economy is going through a very difficult period though Fed and Treasury are confident about its long-term growth prospects with its strong fundamentals.

Unemployment rate jumped up. Contraction in manufacturing, construction and residential investment is reported along with weakening consumer spending. The depressed dollar is
one of the factors contributing to the commodity price boom, especially, oil while commodities, like precious metals, have become an alternative financial asset. IMF’s relief for inflation-hit commodity importers is to allow pass-through of fuel prices and safety net for poor households by targeted cash transfers instead of export taxes and lower tariffs for ensuring food security.

Besides the world economic situation, Fund-Bank meetings will take a look at the IMF governance reform package to revise quotas to reflect the relative weight of emerging economies which arc under-represented an increase in basic votes to enhance participation and voice for emerging market and low-income countries in the 185-member institution. After the first round of ad hoc increases   for   four   countries including China, approved at the 2006 annual meeting of Fund, a second round of ad hoc increases of quotas will be made for 54 under-represented countries under the new quota formula including China and India whose shares would go up to 4.0 per cent and 2.44 per cent respectively. Countries with enhanced quotas will add to their subscribed capital in the Fund corresponding to the revised quota shares.

The Fund-Bank spring meetings will also consider the role of sovereign wealth funds of some 20 or more countries with assets totaling 3.3 trillion dollars, amid concerns about their investments in countries like USA which has misgivings of takeovers about the SWFs operating without a code of conduct and transparency. The World Bank President has come up with a plea for Sovereign Wealth Funds to invest one per cent of their assets, which could draw 30 billion dollars for Africa’s Growth and Development. This could suit a US Government which is unwilling to shoulder responsibilities for creating a more equitable world order.