Failsafe finance?

Dani Rodrik agrees that the IMF is changed, but does not agree that the Fund is now a true lender of last resort. 

Mr. Rodrik's call for stronger national regulation is, in my eyes, (somewhat) correct. Context requires nuanced solutions beyond those that a blueprint framework can provide: this applies from everything from finance to film. His skepticism is healthy, but I remain more hopeful than he that these reforms are at least a step in the right direction. International finance may not be safe, but was it before this mess?

Fund-amentals

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)

Bank failures...but not the kind you think

The world's international financial institutions have had a rough day. A new study linked the rise in tuberculosis in Eastern Europe and Russia with IMF loans to post-Soviet countries. The study comes on the heels of an internal review by the World Bank found that the Group has done a lackluster job of enforcing environmental standards in developing countries.

The first study does not imply causation, regardless of how much the NY Times wants it to, but merely an association. Though disturbing, it should not be surprising that IMF loans, which advocate government thrift (often by cutting social programs), result in a rise in disease. Government doctors lose jobs when socialized medicine is cut and disease rates go up - especially TB, which requires short term care and intensive medical supervision. But ideally, as economic growth spreads through the private sector, health care should become a social privilege available to most, if not all. Just don't tell the US government that the Washington Consensus might apply at home. 

More troubling than an obvious, though somewhat scary, epidemiological correlation is the World Bank's apparent disregard for environmental protection. Environmental safeguards may be a vanguard luxury of the US left but for developing nations nature cannot be divorced from responsible development. Water scarcity due to Bank sponsored agricultural expansion and recent food scares prove that attention must be paid to the environment to create sustainable development. Without proper institutional protection, the environment suffers, citizens of the developing world suffer, and the world suffers as climate change grows more ubiquitous.

The IFIs may be growing less relevant in a globalized world but that does not excuse such behavior. Shape up.