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Financial Institutions

I, too, congratulate the noble Lord, Lord Bilimoria, on securing this short debate, and, indeed, on securing a star-studded list of speakers to contribute to it. I am sure that the IMF and the World Bank did a fine job in helping the world economies to be rebuilt after the Second World War. Like the noble Lord, Lord Newby, I shall concentrate my remarks on the IMF, which has continued to support economies which have run into trouble, including, of course, our own during a period of Labour Government mismanagement of the economy in the 1970s, and we should not forget that. But, of course, a valuable history does not guarantee the IMF a place in the future. After the Asian financial crisis in the late 1990s, the IMF admitted that it had ““a lot to learn”” about preventing financial crises. As other noble Lords have said, it is fairly clear that it played no positive role in the current global financial crisis as it evolved. Therefore, we have to ask whether the IMF really has a role beyond that of clearing up after the event on an ex post basis. The IMF spends a lot of time analysing countries and issues a lot of reports, but it seems to have no real influence unless it has a rescue package to which it can attach some levers. I give an example. In the 2006 Article IV consultation on the UK’s economy, the IMF warned about the UK’s high household debt, its overpriced housing market and the high leveraging of our mortgage lenders. It concluded that the UK was particularly vulnerable to shocks in international markets. All of this has proved very accurate. We challenged the Government about it at the time, but it was all too easy for them to ignore the analysis. There also have to be questions about the quality of the IMF’s analysis. In 2203, the IMF completed a financial sector assessment of the UK, which described our financial stability policy framework in glowing terms. But that is the framework that included the FSA, which regulated Northern Rock appallingly badly, and the tripartite arrangements, which were a shambles when put to the test. What value does the IMF add, with reports that can be ignored or which, with the benefit of hindsight, flattered to deceive? Is the IMF simply too polite about countries such as the UK, whose support is important to its continuation? As has been mentioned, there have been calls from the Prime Minister, certainly since 1998, for changes to the international financial architecture, and no one has been really sure what that has meant in practical terms. Indeed, there has been no tangible action in that period, though of course there are thousands of worthy words written on the subject by bodies such as the Financial Stability Forum. Yesterday, we heard from the Chancellor that there will be 30 colleges of regulators, but apart from that, we are still only promised more meetings on the subject. Is there any substance to the latest round of rhetoric? I hope that the Minister will be able to enlighten us. Apart from grand plans to reform the international financial architecture, there are some short-term issues about funding which some noble Lords have already mentioned, given the queue of countries now waiting for some help. In 2006, the IMF sold off some of its gold to fund its operations and thereby ran down the resources that it had available. As the noble Lord, Lord Newby, pointed out, the Prime Minister called for hundreds of billions of extra dollars in a bail-out fund. The noble Lord, Lord Newby, is ahead of me in hearing that China has signed up. When I was researching this yesterday, there was deafening silence on whether anyone was going to put their hand up or indeed put their hand in their pocket. Maybe we will get some extra money into the IMF, and I am sure that will be helpful. This week, we have seen that there are separate and partly competing EU, US, IMF and World Bank funding initiatives. Does the Minister think that this patchwork of different initiatives to support countries is the most efficient way of delivering support? Do the Government think that the IMF and the World Bank should be at the heart of those efforts, or are we witnessing a nail in the coffin of the positions of those bodies in the global economy?