This article was received from Project Syndicate, an international not-for-profit association of newspapers dedicated to hosting a global debate on the key issues shaping our world.
Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Baseline Scenario. He is the co-author, with James Kwak, of White House Burning: The Founding Fathers, Our National Debt and Why It Matters to You.
WASHINGTON, DC – The International Monetary Fund is an immensely useful organization, able to deliver substantial amounts of financial and technical assistance at short notice to almost any place in the world. It also has the great advantage of almost always being perceived as incredibly boring.
Unfortunately for the IMF, it now needs a slightly higher public profile to convince the US Congress to agree to some important reforms. The Ukrainian crisis may prove helpful, though that appears less likely now – which may be a good thing to the extent that one unintended consequence could be a loan to Ukraine that is larger than it really needs.
In the realm of international economics, being perceived as boring confers power to the extent that it allows major decisions to be made without a great deal of external scrutiny. From 1918 to 1939, international economic cooperation was hard to come by – in large part because all of the attempted deals were put together at high-profile international conferences. Following the creation of the IMF in 1944, many of the same decisions became routine, a lot less interesting, and much easier to implement.
The IMF rarely makes front-page headlines in the United States or other big countries, except when there is a racy personal dimension. The last time that many read a news story about the Fund may have been when then-Managing Director Dominique Strauss Kahn was forced out in May 2011, following accusations that he sexually assaulted an employee in a New York hotel.
Since then, his successor, Christine Lagarde, has helped to restore the Fund’s reputation – and to return coverage of its programmes and activities to newspapers’ dry and unemotional business sections. (When I worked at the IMF in the 2000’s, page-three coverage of our events by leading newspapers was typically viewed as preferable to top billing.)
Of course, in countries receiving assistance – such as Greece in the last few years – the IMF excites great passion. But in the halls of the US Congress, few people pay any attention.
In the highly charged partisan atmosphere of Washington, DC, this is without question almost always an advantage. Imagine if the disbursement of all assistance to countries in trouble required Congressional approval, let alone spending from the US budget. Nothing good would ever happen – and certainly not for the US.
The IMF is founded on the premise that it represents cooperation between all of the countries of the world. The reality is that it stands for and operationalizes US power, in cooperation with America’s closest allies.
Anyone who doubts that should review a recent letter orchestrated by the Bretton Woods Committee, addressed to Congressional leaders on behalf of an impressive array of former Republican and Democratic cabinet secretaries. The first paragraph reads, “The IMF has always been a valuable tool for advancing US national interests globally.”
The US does not dictate what happens at the IMF, but it does have a disproportionate influence. Given the Fund’s origins in helping to rebuild Europe after World War II, European countries are also very well represented on its executive board and in terms of ownership shares (and thus voting weight on important decisions).
One major goal in recent decades has been to shift representation at the IMF somewhat away from Europe and toward the world’s emerging markets. These countries’ global economic and financial significance has grown rapidly, yet they have relatively little representation at the Fund.
A package of reforms has been agreed. Like most products of international negotiations, the agreement is not perfect; but it does move the ball forward. (For the technical details, I recommend a recent paper by Edwin M. Truman, my colleague at the Peterson Institute for International Economics.)
These reforms need to be agreed, in legislative form, by the US Congress before they can take effect. For whatever reason, President Barack Obama’s administration did not push this item hard in 2013 and early 2014 – and the agenda of encouraging further IMF reform has therefore languished.
The Obama administration proposed to tie IMF reform to the presumably imminent approval by Congress of funding for Ukraine. This is sensible legislative tactics but not appealing as an economic strategy. In effect, the administration tried to make the IMF more interesting, particularly to encourage Republicans in the House of Representatives to support the reforms.
The latest indications are that the Republicans will not be so enticed. But the bigger problem is that Ukraine does not really need a massive loan from the IMF. What Ukraine needs is a sharp reduction in corruption, as well as real legitimacy (through the ballot box) for people who want to rein in the influence of oligarchs – a group that has sapped the economy through plunder and incompetence over the past two decades.
IMF reform is sensible and should be supported. The Europeans do not need their current level of representation, and the positions and voices of middle- and lower-income countries should be strengthened.
The Obama administration needs to make this case more directly and forcefully to Congress. The inherent dullness of the IMF makes that hard.