Reimagining the IMF

• Author: Adam Tooze
• Position: History professor at Columbia University
• Pages: 30-31

30 FINANCE & DEVELOPMENT | June 2019

POINT OF VIEWPOINT OF VIEW

Reimagining the IMF

In the postcrisis world, the Fund must move beyond its role as

lender of last resort

Adam Tooze

COURTESY O F ADAM TOOZ E

IN 2 00 7, on the eve of the global nancia l crisis, the

IMF was an orga nization under siege. Economist

Barry Eichengreen c alled it a “rudderless ship adrift

in a sea of liquidity.” Mervyn King, t hen governor

of the Bank of England, w arned that it was at risk

of “slipping into obscurity.”

Its outstanding loans h ad shrunk to about $11.1

billion. e only signicant new borrower was

Turkey. As business dried up, so did sources of

revenue. If the period of easy cred it had continued,

the Bretton Woods institutions might well have

been reformed beyond recognition. But the crisis

of 2008 ended that discussion. In the absence of

any obvious alternative, the Fund beca me a critical

part of the crisis-ghting eort.

e past decade has seen d ramatic nancial, eco-

nomic, and political turmoil. It has been a good

decade for the IMF. Today it stands alone as the

only global nancial crisis–ghting agency. It is

amply resourced. Its expert st a is not merely a tool

in the hands of creditors. Particularly during the

euro area crisis, it demonstrated a striking degree

of programmatic independence.

But not every crisis is good for the IMF. e fact

that countries did not want to borrow from the

organization before 2008 was not simply an eect

of the economic upswing and the ea sy availability of

private funding. eir relucta nce was also powerfully

motivated by the stigma the IMF acquired during

the Asian nancial crisis of 1997–98, when it was

accused of imposing needle ssly painful conditions

on its borrowers.

In an attempt to respond to the criticism, the

IMF set up its own watchdog, the Independent

Evaluation Oce. It pushed for fundamental reform

of sovereign debt restructuring, but that proposal was

abandoned in the face of erce objections from the

nancial industry. e George W. Bush administra-

tion called for more action by the IMF on current

account imbalances, hoping to exert pressure on

China. But it soon became clear that the United

States had no intention of allowing oversight and

criticism of America’s own imbalances.

When the 2008 crisis hit, the IMF initially took a

back seat. At least on the surface, in 2008 there was

neither a balance of payments nor a currency crisis.

It was not, in other words, an “IMF crisis.” In South

Korea, which did suer a disruptive devaluation of the

won in fall 2008, the Bush administration ruled out

any IMF involvement. e memories of the 1990s

were too fresh. It was only when the shutdown in credit

markets morphed into a sudden stop in emerging

market funding that the IMF was called to action.

Division of labor

Tacitly a functional and political d ivision of labor

took shape. National authorities bailed out bank s.

Countries with large reserves, like Russia and

China, self-insured. e Federal Reserve provided

dollar liquidity direc tly to a core group of 14 cen-

tral bank s. e IMF provided facilities for other

countries and made sure to structure its support

in a minimal ly intrusive way, oering Mexico and

Poland one of its new exible credit lines.

e scale of crisis lending a nd the need to expand

IMF funding h ad the healthy eect of forcing the

Western incumbents and the rising Asia n econ-

omies to come to terms over rebalancing quotas

and voting rights. At the London meeting of the

Group of 20 in April 2009, the IMF’s lending

capacity was tripled to $750 billion.