Whether the sustainability of the IMF should be called into question may depend in part on your view of the world economy As the IMF’s budget is in decline, so too is its authority in Latin America. The Washington-based multilateral, once the bail-out champion of the region, has squared up over the last year to its long-term financial problems as its traditional source of revenue – profits on lending – has dried up, while most big debtor nations have paid back enormous loans extended during financial crises.
Indeed, hardly anyone is calling on the Fund’s $220 billion supply of foreign exchange anymore; Brazil and Argentina, among others, have repaid their debts. According to Anne Krueger, until recently first deputy managing director of the Washington-based lender, this is hardly surprising. “This is not the first time that there has not been a boom in lending,” she tells Emerging Markets, pointing out that the ability of the Fund to respond with financing to a crisis hasn’t been impaired – yet. The IMF is funding current activities by drawing on its reserves, something that’s not sustainable in the long run. It urgently needs extra money to plug the shortfall of $400 million a year in the IMF’s current income and expenses by 2010.
This fiscal year it must endure a freeze, in real terms, in its $980 million budget for staff, travel and other administrative costs. A year ago, IMF managing director Rodrigo de Rato commissioned a team of top economic thinkers led by Andrew Crockett, former head of the Bank of International Settlements, to come up with new ways to fund the Fund. They recommended the institution should actively invest its reserves and hard currency quotas while, controversially, selling 400 tonnes of gold. “Many people find reprehensible the idea of selling [official] gold [reserves] to pay staff that aren’t doing anything,” says Liliana Rojas Suarez, senior fellow at the Center for Global Development. “Unless you give a compelling plan for where the money will come from in the event of a liquidity crisis, the institution is not credible.”
Partly as a result of this reversal of fortunes, the sway the institution once held over the region has palpably diminished, analysts say. But Krueger, who was at the Fund’s helm throughout Latin America’s last bout of crises, is adamant that the institution has not lost its authority in the region. “I don’t see that at all,” she says. “I’m not aware of that anywhere.” Who needs whom? But what of Argentina, a nation for whose past economic woes the Fund, by its own admission, is partly to blame? “The Argentines are in a class by themselves,” she says, “but if you ask [Brazil’s president] Lula, I think he’ll say he’s quite happy with the Fund.” Guido Mantega, Brazil’s finance minister, told Emerging Markets in an earlier interview that he thinks the institution’s mandate has changed substantially.
“The IMF needs Brazil more than Brazil needs the IMF,” says Mantega, who wants the Fund to focus on setting up a special emergency account for targeted bailouts of countries in crisis. John Taylor, former head of international affairs at the US Treasury, and the US official who attempted to deal with Argentina’s 2001 crisis, is clear: “The notion of not using the IMF as a crutch is good. Argentina was so engaged with the Fund during the 90s that the cooling off period we’ve seen since is a healthy one.” Much, though, depends on your view of the world economy – and the extent to which traditional borrowers will have, in fact, weaned themselves away from Fund lending when the crunch comes. It’s Krueger – the legacy of whose tenure will depend on what now becomes of the institution – who takes a parting shot: “No one I know is confident that crises are gone,” she says. —T.A.