|IMF needs to be re-maid|
|Friday, 20 May 2011 00:00|
Not surprisingly for an organisation that was created to deal with crises, it requires a crisis, or a series of them such as the one in 2008 and its aftershocks today, to appreciate the IMF—by a happy coincidence for the now-disgraced Dominique Strauss-Kahn, the seven-fold hike in IMF’s lending and the resultant increase in its relevance, triggered by the 2008 crisis, happened under his watch. The current crisis triggered by Strauss-Kahn’s decision to finally resign after being arrested for allegedly assaulting a maid in Manhattan, ironically, offers the IMF a window to restructure itself. Right now, though, the chances of this look slim, with Europe digging in its heels in replacing Strauss-Kahn with a fellow European and the emerging market economies (EMEs) not appearing as if they are uniting behind one common candidate—if India and China can’t agree on their nationals being chosen for the job, you’d think the chances of Singapore’s finance minister Tharman Shanmugaratnam as a consensus candidate would be stronger, but that doesn’t seem to be happening either.
The IMF’s crisis of credibility, at least in the non-OECD world, stems from the belief that it has different standards for different parts of the world—loan conditionalities tended to be harsher in the east Asian crisis; in Europe, however, the IMF’s lending has been more benign—Greece will be the test case to see if the soft approach works. The fact that German Chancellor Angela Merkel has said she’s in favour of keeping the job in Europe tends to buttress the view that the IMF’s bailout for Europe has been more generous than it would have under a non-European chief. Strauss-Kahn’s tenure saw the IMF changing, sceptics would say to keep it from becoming totally irrelevant, and dogma changed with the IMF becoming more accepting of the virtues of temporary capital controls, for instance. The 2008 crisis also saw the IMF recognising the need to pump-prime in times of crisis. EMEs also saw a rise in their voting power, but with the balance of power still firmly with the OECD. If the world was getting less crisis-prone, this may not have mattered. But the sharp increase in sovereign debt in response to the 2008 crisis, for instance, suggests that we could see a lot more sovereign debt crises over the next decade; the decline of the dollar is another crisis that needs dealing. If the part of the world that is increasingly going to contribute more to global growth is suspicious of the IMF, that can only hurt its credibility.