CAMBRIDGE – What a difference the crisis has made for the International Monetary Fund. It was just a few months ago that this important but unloved institution, a landmark of post-war global economic arrangements, seemed destined to irrelevance.
The IMF has long been a whipping boy for both left and right – the former because of the Fund’s emphasis on fiscal rectitude and economic orthodoxy, and the latter because of its role in bailing out indebted nations. Developing nations grudgingly took its advice, while advanced nations, not needing the money, ignored it. In a world where private capital flows dwarf the resources at its disposal, the IMF had come to seem an anachronism.
And, when some of the IMF’s largest debtors (Brazil and Argentina) began to prepay their debts a few years ago with no new borrowers in sight, it looked like the final nail in the coffin had been struck. The IMF seemed condemned to run out of income, in addition to losing its raison d’être. It shrank its budgets and began to downsize, and, while it was handed some new responsibilities in the meantime – surveillance over “currency manipulation,” in particular – its deliberations proved largely irrelevant.
But the crisis has invigorated the IMF. Under its capable managing director, Dominique Strauss-Kahn, the Fund has been one of the few official agencies ahead of – instead of behind – the curve. It moved quickly to establish a fast-disbursing emergency line of credit for countries with “reasonable” policies. It ardently championed global fiscal stimulus on the order of 2% of world GNP – a position that is all the more remarkable in view of its traditional conservatism on all fiscal matters. And, in the run-up to the G-20 summit in London, it thoroughly overhauled its lending policies, de-emphasizing traditional conditionality and making it easier for countries to qualify for loans.