shrinking into irrlevance? Let's hope

[michael perelman <michael@xxxxxxxxxxxxxxxxx>]

Moffett, Matt and Bob Davis. 2006. "Insufficient Fund: Booming Economy
Leaves the IMF Groping for Mission." Wall Street Journal (21 April): p. A 1.

"Now the IMF faces a novel predicament: A robust global economy, growing
at a 4% clip since 2003, has left the IMF with a dearth of financial
firestorms to manage, and fewer countries willing to borrow from it and
heed its dire lending conditions. Flush with cash and eager to regain
control over their economic policies, 10 countries, from Russia to
Brazil to Argentina, have repaid loans to the IMF ahead of schedule in
recent years. The IMF's current loan portfolio of $35 billion is its
smallest since the 1980s."

"A shrinking loan portfolio greatly diminishes the IMF's influence over
global economic policy. IMF loan disbursements are conditioned on the
enactment, within defined time frames, of measures including
privatization of state-owned companies, budget cuts, interest-rate
increases and stiffer financial regulation. Once IMF loans are ended,
the momentum for economic reform in one-time borrowers may fizzle.
That's a worry in Latin America, especially where populist politicians
are winning power across the continent."

" Fewer loans also means less interest income, and thus fewer dollars in
the IMF coffers. In an irony that has provoked tittering among many
emerging-market finance ministers, the agency that has long preached
belt-tightening now must practice it itself. Over the next three years,
the IMF figures it may sustain operating losses of nearly $600 million,
and have to dip into its nearly $9 billion in cash reserves to cover the
shortfall. To reduce the red ink, the Fund has already capped personnel
levels at 2,800 and is planning budgets that would lag behind the rate
of inflation. It may start charging nations for technical advice that
the IMF now provides free. If that doesn't work, it may have to tap its
vast gold hoard of 103 million ounces, valued at $63.5 billion at
today's prices and held in the vaults of IMF member nations."

"The IMF is trying gamely to change the way it does business, from
lender to "confidential adviser," as Rodrigo de Rato, the IMF's managing
director, puts it. That entails a mixture of sound economic advice,
outreach to one-time opponents -- and a splash of public relations.
Arm-twisting is out; persuasion is in."

--


Michael Perelman
Economics Department
California State University
michael at ecst.csuchico.edu
Chico, CA 95929
530-898-5321
fax 530-898-5901