Changing the Guard at the IMF

Stanley Fischer’s looming departure as the IMF’s first deputy managing director marks the end of an era. Indeed, all those who led that institution during the global crises of 1997-1998 (Fischer, Managing Director Michel Camdessus, director of research Michael Mussa, as well as the two men who directed events behind the scenes from the US Treasury, Robert Rubin and Larry Summers) are all gone or going.

Failures in Indonesia, Thailand, and Korea of 1997 were followed by failures in Russia and Brazil the next year: in those cases, attempts to maintain exchange rates at overvalued levels left taxpayers in those countries billions of dollars poorer. Preserving exchange rates, however, provided vital time for people with money to get out at more favorable terms. Only devaluation restored growth to these countries.

With each failure, the IMF’s credibility decreased. Still, it thrashed about for solutions, each little more successful than before. Sometimes the solution entailed precautionary lending, as in Brazil; another time it was a “bail-in” strategy that was eventually abandoned, as in Romania.

The last straws were this year’s crises in Turkey and Argentina. Turkey’s panic came on the heels of Fischer saying that everything seemed on track. Argentina, long an IMF poster child, was lauded for bringing down inflation and stabilizing its exchange rate. In this fog of praise, the IMF ignored the fact that Argentina’s growth rate had stagnated and that double-digit unemployment persisted for half-a-decade. Without growth, it would become increasingly difficult for Argentina to repay their huge loans.