CAMBRIDGE – With the International Monetary Fund playing a central role in the eurozone’s blueprint for a bailout of Greece, the multilateral lender has come full circle. In its early days after World War II, the IMF’s central task was to help Europe emerge from the ravages of the war. Once upon a time, the Fund had scores of programs across the Continent (as Rong Qian, Carmen Reinhart, and I illustrate in new research on “graduation” from sovereign debt crises.) But, until the financial crisis, most Europeans assumed they were now far too wealthy to ever face the humiliation of asking the IMF for financial assistance.
Welcome to the new era. Europe has become ground zero for the biggest expansion of IMF lending and influence in years. Several large Eastern European countries, including Hungary, Romania, and Ukraine, already have substantial IMF loan programs. Now, the eurozone countries have agreed that the Fund can come into Greece and, presumably, Portugal, Spain, Italy, and Ireland, if needed.
The IMF’s resurgence over the past year is breathtaking. Castrated by populist rhetoric during the Asian debt crisis of the late 1990’s, the Fund had been struggling to re-anchor its policies and rebuild its image. When France’s Dominique Strauss-Kahn took over the helm in the fall of 2007, even poor African countries were shunning the IMF like a leper, preferring to make deals with non-traditional lenders such as China. Absent new business and new revenues, the Fund was facing dire cutbacks to ensure its own survival.
What a difference a crisis makes. Now the IMF has ascended Mount Olympus. In April 2009, G20 leaders approved a quadrupling of the Fund’s lending capacity. The increase was perhaps exaggerated in the heat of the moment, but a good chunk of the money actually appears to have materialized. And for Europe, the help has come none too soon.