Back in the spotlight, but is IMF up to the task?

By Lesley Wroughton - Analysis

WASHINGTON (Reuters) - The worst financial crisis since the 1930s has forced the International Monetary Fund back onto the global stage as countries that weaned themselves off its help long ago find they need assistance once again.

Now it must find a way to gain relevance and respect among the rich nations that pay its bills but don't particularly want its advice.

The strong economic growth of the past six years allowed countries like Brazil, Argentina, Turkey, and some in Africa, to leave the fund's fold after years of financial aid.

Some of those same countries are upset by what they see as the IMF's reluctance to speak up when economic turmoil strikes the developed world. They want the fund to be just as assertive in pointing out policy shortcomings in rich nations as they are in emerging economies.

British Prime Minister Gordon Brown on Wednesday said the IMF must be reshaped to help regulate the world's financial system and avoid a repeat of the global credit crisis.

"The IMF has to be rebuilt as fit for purpose for the modern world," Brown said in Brussels as he called for an early warning system for the international economy and more cross-border supervision of multinational financial companies.

But when the IMF did sound the alarm bells last year about problems in the U.S. housing sector, few listened.

In April, when the IMF gave a gloomy economic assessment and predicted that losses from the credit crisis may approach $1 trillion, officials from several rich nations complained bitterly that the fund was being too pessimistic.

Last week, it raised its loss estimate to $1.4 trillion and warned of recessions in the United States and parts of Europe. This time there were no complaints.

FAILURE TO SPEAK OUT

Fund critics, and even some big supporters, believe the global lender can only be effective when it is willing to speak its mind on issues affecting both rich and poor nations.

"It will take decisions by the major shareholders to change the current situation in which they by and large prefer to handle their own problems in smaller, more exclusive clubs, and leave it to the fund to deal with less wealthy and smaller nations. And then they complain about the fund's ineffectiveness," Bank of Israel Governor and former IMF No. 2 Stanley Fischer said during a panel discussion on Sunday.

During weekend IMF and World Bank meetings of global finance officials in Washington, the fund tried to regain its foothold by issuing strong warnings for countries to act quickly and cooperate to limit the damage of the crisis.

But emerging and developing countries are seething at the IMF's failure to speak up more candidly about U.S. problems that now threaten to destabilize their economies.

"Why is the IMF so remote from this situation? This is the world's greatest financial crisis," South African Finance Minister Trevor Manuel, who is leading a panel on IMF governance, said. "The fund must be heard (and) resonant with decision-makers across the world."