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Break Out The Champagne! Bring On The Dancing Girls!

Jeremy Hetherington-Gore Unleashed
18 January, 2009

Aaaaaaaaarrrrggggghhhhhh, here they come, the Directors with a capital D of The International Monetary Fund for their quinquennial inspection of our economy.

Polish everything, lads, paint the trees on the road to the airport, buy some new sofas for the VIP lounge (but make sure they go down as terrorist detection scanners). And isn't it time that rather overweight hostess was moved to the back office? There's a very pretty one who works for the Police Chief.

The IMF has 184 members at a recent count; it's something you have to belong to, like the UN and FIFA, if you want to be taken seriously as a country. And one of the ways in which the IMF spends all that taxpayers' money and occupies the time of those thousands of expensive economists it thinks it needs is to carry out its 'Article IV consultations', as these inspections are known.

As exercises in futility, they are hard to beat. There are dozens, no, hundreds of meetings, lunches, dinners and general schmoozing, and an immense report with reams of Appendices, pie-charts, graphs and tables, accounting for several acres of rain forest. And all to present conclusions in high-flown pompous language which could have been reached in ten minutes by any half-competent economics graduate. And which will be completely ignored once the team of Directors has settled into its business class seats on the way to torment some miserable island in the Pacific which is about to disappear in any event.

At least now they've gone we can get back to doing something useful, and the Police Chief can have his floozie back.

The IMF is a Bretton Woods Institutiomn, and it's very disrespectful to talk of it in this way, of course. It is the standard-bearer of economic orthodoxy. But it is arguable that the IMF, whose primary stated purpose was exchange rate management, lost its way after the system of fixed exchange rates broke down under the weight of economic forces in the 1970s. Its high-water mark may have been Denis Healey's famous return to London in 1976 when the British Government had to accept humiliating conditions for IMF support of the pound. Of course, next year it may get to do a repeat performance, when Alistair Darling and Gordon Brown have spent all their money nationalizing the banking industry.

The IMF's own (modernized) 'mission statement' is: 'The IMF is an organization of 184 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.' OK, that's nice (yawn).

Actually the useful work of the IMF, which no normal person knows anything about, is standard-setting, an activity shared by all of the 'multilaterals', including also the World Bank and the Basle Committee on Banking Supervision on a fiduciary level and the OECD in fiscal affairs, to mention just the most prominent of global economic standard-setting bodies.

The IMF has also given its name to a Code of Conduct that emerged from persistent sovereign debt crises: The Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets. This was formulated in 2004 between the representatives of emerging market countries and private sector creditors.

Says Ngaire Woods: 'The challenge for the IMF and the World Bank . . . . is economic policy made in a more transparent, openly contested, publicly debated, and democratic way. That process is likely to be messy, complex and time-consuming; it will often thwart rapid reform, and it will certainly marginalize the role of the IMF and the World Bank' (Woods, N, 2006, The Globalizers - The IMF, the World Bank and Their Borrowers, Cornell University Press).

Nowadays, even small countries feel able to defy the IMF's prescriptions, which can loosely be labelled Keynesian rather than Friedmanite; that's to say, dirigiste rather than liberal. Thus the tide of economic fashion has turned against the IMF, which as a proud (some would say, arrogant) international arbiter probably finds it hard to encompass fiscal relaxation.

The future of the IMF is problematic, and it may not survive the first half of the 21st century as an independent institution. Says Timothy D Adams, Undersecretary for International Affairs, US Treasury: 'The perception that the IMF is asleep at the wheel on its most fundamental responsibility - exchange rate surveillance - is very unhealthy for the institution and the international monetary system.' Perhaps that's unfair: the truth is that the market has taken over exchange rate management. The IMF has played a useful part in helping the development of sound fiscal regimes in many 1st, 2nd and 3rd world countries, but its task is nearly done.


About the Author

Jeremy Hetherington-Gore Unleashed

Jeremy tackles the difficult issues head on!


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