Plenty have highlighted the promises to the IMF as one of the greater success of the G20 Summit. Free Exchange doesn't agree:In the quest for a big headline number to throw at the world and the press, and in an attempt to equate this to the missing globally coordinated fiscal stimulus, there's been a fair amount of hand-waving. Of the money that the IMF is supposedly getting, the only clear new commitment is a relatively small $40 billion from China.
True, the new commitments aren't as stellar as the media is reporting. But, the big change is not the new money; it's the Flexible Credit Line. To be fair, the author correctly notes that countries aren't exactly lining up for these IMF handouts. But if Mexico has a decent time with the revamped IMF system, you better believe a few more governments will be putting in a call to Mr. Strauss-Kahn.
Besides, the amount of money isn't that important: it's the fact that after years spent resisting change and asserting their right to essentially dictate monetary policies to countries (ahem, Thailand), the IMF is loosening its grip, albeit slowly. Countries still must have "sound monetary policies" to qualify for these new loans. But the definition of "sound" hasn't been spelled out and more importantly, the loans don't come with IMF staff. With nationalist rhetoric rising in the wake of the financial crisis, taking IMF money is going to be a much easier political sell if it doesn't come with resident Fund officials. The US and Europe may still have de facto veto power within the Bank group, but that's something most people won't know when they head to the ballot box.
(Photo from Kyrion)
1 comment:
The Fund deserves much praise for the Flexible Credit Line. As you say, it is not just a policy innovation grounded in political and economic reality (as opposed to dogma), but a statement on the Fund's growing self-awareness, both of its present responsibilities and past mistakes. The G20 had nothing to do with the Flexible Credit Line, and that speaks volumes to the Fund's assertiveness in the present crisis.
A point on the Free Exchange post itself: it asks, where is the demand for a massively capitalized IMF? This question is woefully blind to the loan packages of the past year. From Pakistan to Ukraine, assistance packages have been provided by consortiums of lenders: the IMF, individual countries like Japan (Pakistan) or Russia (Ukraine) and institutions like the EBRD. Now the reasons for this composition are varied, but a major factor is the Fund's limitations. This cuts precisely to the reason for increasing the Fund's capitalization. The ability and willingness of sovereign lenders like Russia to contribute to such assistance packages is highly constrained under the present crisis. Just look at the EU's posture towards Eastern and Central Europe. The political will for such assistance is eroding rapidly. A more robust Fund is critical to meeting the next wave of assistance (see: Turkey).
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