Monday, March 1, 2010

The IMF Tries to Take the Teeth Out of the IMF

. Monday, March 1, 2010

Emmanuel passes along this article on the changing culture in the IMF:

The International Monetary Fund is considering a new multibillion dollar lending arrangement it would deploy during crises, which would offer money to countries even if they don't ask for it.

Under the "multicountry credit line," the IMF would, for the first time, make money available to groups of countries that it believes are in danger during financial crises, rather than individual nations, said a senior IMF official.

The previous m.o. of the IMF was to make their loans as unattractive as possible to reduce moral hazard. But in recent days the Fund seems more interested in staying relevant:

The credit-line concept represents further rethinking on the part of the IMF of how it should operate to ward off or handle crises. During the past few weeks, the IMF has suggested that countries might aim for a higher level of inflation than central banks traditionally do, and that countries might consider using taxes and regulation to limit surges of capital that could inflate asset bubbles. Both suggestions go against years of IMF doctrine.

During the recent global recession, the IMF eased its usual requirements that countries slash spending or raise interest rates in order to qualify for rescue loans.

It also created a new loan, called the flexible credit line, for countries whose general economic policies passed IMF review. Those countries didn't have to meet specific IMF requirements to get approved.

So what to make of this? Does this represent an internal ideological shift of the proper role of the IMF, or is the Fund trying to carve out a greater role for itself in the global political economy? As the WSJ article notes, the Fund is seemingly try to remove the "stigma" of participating in a loan program, but why? Is the IMF trying to move from its pseudo-position as "international lender of last resort" to a position as "lender of ... resort"?

I have to say, I'm somewhat bemused by this. Despite initial fanfare, the new, kinder, gentler IMF hasn't gotten all that much action during this crisis. After much fanfare over the new "flexible credit line" (now with fewer conditions!) only Mexico, Columbia, and Poland applied for it. The news that Germany and France are moving towards taking care of Greece's debt on their own calls the IMF's relevance into further question.

I guess I'm just a bit unsure of what this really means. Is this an example of the IMF following the wishes of its constituent governments (since the financial crisis began in, and is primarily focused in, Western industrialized and semi-industrialized states)? Pop-Eleches might argue that. Or does it simply represent a further ideological shift away from neoliberalism and the Washington Consensus? Jeffrey Chwieroth might argue that. Or is it just a pitch for continued relevance by the Fund itself?

Perhaps someone with more knowledge of the IMF can step in and parse this. Vreelander?


The IMF Tries to Take the Teeth Out of the IMF




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