The International Monetary Fund (IMF) should resist pressure from European Union leaders to take part in inadequate bailout programs for European countries, Mohamed El-Erian, chief executive and co-chief investment officer of Pimco, wrote in an opinion piece in the Financial Times Friday.
Sovereign risk, along with poor growth and rising inequality, will continue to raise questions about the functioning of the global economy next year and the IMF will be in the spotlight, El-Erian wrote.
"There is no denying that too many of the adjustment programs it has overseen have fallen short of their objectives. Whether it jumped or was pushed, the institution sacrificed some of its own rules, including those previously deemed sacrosanct," he wrote.
"For two years, the IMF agreed to a series of programs that were partially designed, inadequately funded and, in some cases, even threatened its preferred creditor status. In each case, the IMF ended up supporting a weak attempt to muddle through, rather than a plan sustainable in the medium term," El-Erian added.
Earlier in December, European Union leaders agreed to boost the IMF's funds by 150 billion euros ($194 billion) to fend off the debt crisis but the fund has already taken part in bailouts for Greece, Ireland and Portugal and there were reports in November that it may be involved in a bailout of Italy if the country gets into trouble.
The bailouts involved austerity measures aimed at cutting debt and deficits, but the countries' economies were hit and the yields of the countries' debt still remained at levels seen by markets as unsustainable.
The European Union is the biggest contributor to the IMF's funds but many experts have said developing economies, especially in Asia, are under-represented at decision-making level in the institution.
"The world needs a strong and legitimate multilateral institution if it is to avoid costly fragmentation; and Europe needs a credible IMF to help it overcome a deepening crisis. This will only be achieved if there is a change next year in the overly cosy relationship between Europe and the IMF," El-Erian wrote.
"The IMF must find the courage to resist European bullying; and the rest of the world must help by making a collective effort to accelerate reform of the institution’s governance and representation. Only then would an enhanced IMF be able to help the global economy back to growth and jobs," he added.