The sweeping reform announced yesterday by the IMF faces an uphill battle to make it through the US Congress, say experts who follow the institution. “There is no chance that this reform will be passed by this Congress. There simply is not enough time,” said Edwin Truman, a former assistant secretary for international affairs at the US Treasury in the late 1990s.
The reform, approved yesterday by the IMF’s board, changes the way the fund receives and spends money. It includes a $100 million cut in expenses between now and 2011; this would cut administrative costs by 14% to $796 million, from $922 million this year. This includes a major reduction in staff, around 400 people, that even sceptics of the reform say is necessary.
The most controversial move in the package is the sale of 403.3 tonnes the IMF’s gold reserves, which total more than 3,200 tonnes. The fund is the world’s third largest holder of gold. The IMF values its total gold reserves at $9.2 billion, based on the price when it was acquired more than half a century ago, but the value has this year fluctuated between $95 and $100 billion. The gold sale would be used to create an endowment for the fund.
The reform package, pushed through by IMF managing director Dominique Strauss-Kahn, draws largely from the recommendations of a blue-ribbon committee, chaired by JP Morgan International president Andrew Crockett, that submitted a report on the IMF’s long-term financing in 2007. Ken Rogoff, former chief economist at the IMF, told Emerging Markets that unloading some of the fund’s gold reserve is a wise move that will provide it with financial resources and allow it to cover a current shortfall and maintain stability. The fund’s projected shortfall without the reform plan would be $400 million in 2010.
Rogoff, now a professor at Harvard University, said that since its creation in the 1940s the IMF has faced lean times when the world’s economy is good, and has boomed during crises when it makes loans to members. “[The reform plan] is a better way to do business, instead of having a lender of last resort that depends on crisis to stay alive. This is an absurd way to operate a financial institution.”
Rogoff is optimistic that the US Congress will eventually come around to the IMF reform and approve it. “It is manifestly in the US interest to put the IMF on solid financial footing. I think the US Congress will come around. The IMF is a large benefit with a relative small cost,” he said.
The fund’s other 184 members would also have to give their blessing for the changes to be implemented. Jo Marie Griesgraber of the New Rules for Global Finance Coalition, an NGO that tracks the fund, said: “The positive news is that the IMF is reducing staffing, something that should have happened long ago. They knew that had to do something to keep the doors open.”
Truman, now a scholar at the Peterson Institute, said that even if Congress does not pass the changes this year, it would be important for the Bush administration and the government that follows it in 2009 to support the reform. He said that failure to pass the reform would mean that the IMF would have to return to the drawing board. “It would be unfortunate, but it is not a poison pill if Congress does not pass it,” Truman added.
Vito Tanzi, former head of the IMF’s fiscal affairs department, said: “You have to know what the needs [of theinstitution] are tomorrow, before you decide how to staff [it] today.”