March 17th, 2009
What Is Wrong at the IMF? The Europeans Dammit, and Development Community Confusion, Too
By Nancy Birdsall
Simon Johnson has a terrific statement on why you and I are missing the boat on what’s wrong at the IMF and why we’re not paying enough attention. If you’re interested in reform of governance at the IMF and the World Bank, you’ll see why officialdom (in Europe) is not (now) on your side. Here are excerpts from Simon’s op-ed in the New Republic on-line, which he included in his Baseline Scenario post:
“The only slight ray of hope [from the G20 process at present] is the American idea to increase funding dramatically for the International Monetary Fund. . . . Yet even on this dimension, the news on Saturday was bad. Secretary Tim Geithner this week proposed an additional $500 billion for the IMF–this would constitute a bold and long overdue tripling of its loanable resources. But the West Europeans are, inexplicably, digging in around the idea that there should be only another $250 billion for the Fund (and they haven’t actually offered to pay anything themselves). Providing these resources has no budgetary implications and no other financial costs for the countries that choose to hold their reserves partly as a line of credit to the IMF. . . . .Between you and me, the implications are simple and stark: a longer recession and a more difficult recovery. So why not do it?
It is, pure and simple, the kind of short-sighted and deluded European financial policy that prompted leading countries to demand that the IMF cut 20 percent of its most skilled and experienced personnel in early 2008–at the same time as Bear Stearns collapsed and major banks in almost all industrial countries started to unravel. . . .
Egregious stupidity and borderline malpractice goes unnoticed in the international economic diplomacy space, or at least not picked up on by leading news sources or in the general public discussion. Why? To some (the media), it doesn’t quite meet the threshold for newsworthy – it’s a little too far from the interests of readers and a bit too hard to explain in a news program; nobody cares as much about international issues as they do about domestic bailout scandals – for which there is a much higher tolerance for compelling details. To others (much of the public), it seems too technical and surely something best left to experts. And – remarkably and mistakenly – those who follow the IMF closely (e.g., in the development community) think that this downsizing somehow fits with what they have been trying to achieve; they were completely snowed.”
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Nancy Birdsall
Colin I. Bradford
Kemal Dervis
Jo Marie Griesgraber
Homi Kharas
Johannes Linn
Domenico Lombardi
Vijaya Ramachandran
Richard Samans
Edwin Truman
Ngaire Woods
March 17th, 2009 at 2:38 pm
Let us not mix apples and oranges.
In view of the financial and economic crisis that goes hand in hand with the build up of an environmental catastrophe, all of which requires more and not less global cooperation, Europe’s reluctance to give up a couple of their many chairs at the Boards of the World Bank and the IMF, immediately, without any discussion, is shameful.
Europe’s reluctance to put up more funds to the IMF when it will be facing soon a lot of internal imbalances and without having that clear of an access to draw on a safe-haven check-book, is perhaps sad but understandable, and we all hope they will come around in due time.
Now with respect to the staffing of the IMF that is a completely different issue. I do not know of the remaining 80% of the IMF but if the 20% gone included those that did not speak out when the financial regulators in Basel authorized bank leverages of 62.5 to 1 as long as they lent to clients considered as AAA or AA- by the credit rating agencies I can only say good riddance… while praying (silently)they are not the ones that stayed behind.