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The International Monetary Fund is a lender of last resort. And the global financial crisis has put the IMF back on the map. Iceland, which initially turned to Russia for help, has negotiated an IMF bailout. Pakistan, which first looked for money from China, is talking with officials at the fund. And today the IMF said they will make short-term credits available quickly to others. NPR's Michele Kelemen reports.
MICHELE KELEMEN: A former chief economist of the International Monetary Fund, Simon Johnson, reinvents an old Mark Twain quote to explain the ups and downs of the IMF.
Professor SIMON JOHNSON (Entrepreneurship, Sloan School of Management, MIT): Rumors of the IMF's death were greatly exaggerated in previous years. To be honest, it's only been about five years since the IMF's lending was at its peak.
KELEMEN: It is an institution that thrives during crises. And though just a few years ago, countries shunned the IMF and the heavy conditions it places on loans, emerging economies facing a run on their foreign currency reserves are now back knocking on the IMF's door. The fund, together with the World Bank and the European Union, announced a $25 billion bailout for Hungary today, following its other deals with Iceland and Ukraine. Simon Johnson, who now teaches at MIT's Sloan School of Management, says these bailouts still pale in comparison to the money the U.S. and Europe are injecting into their economies.
Professor JOHNSON: The difference is between a T and a B. So the amounts that have been used to bail out banking systems and, obviously, support lending more generally in the U.S. and Europe are in the trillions, with a T. The amount that the IMF has to take care of all emerging markets, they have 200 billion, with a B.
KELEMEN: British Prime Minster Gordon Brown is appealing to China and Persian Gulf states to kick in billions more to the International Monetary Fund which gets most of its money from the U.S. and Europe. Arvind Subramanian, a former IMF official now with the Peterson Institute for International Economics, says if European nations want to bring in China's resources, they'll have to give up some power they have within the institution.
Dr. ARVIND SUBRAMANIAN (Senior Fellow, Peterson Institute for International Economics): So, a big IMF is something that I think is worthwhile thinking about in terms of resources. But for it to be remotely acceptable to the emerging market countries, there would need to be a radical reform of the government structure.
KELEMEN: At the moment, many believe the European Union has disproportionate rights and voting power and controls the presidency. Those aren't the only things that need to change in the way the IMF works, according to Subramanian.
Dr. SUBRAMANIAN: It has to be more nimble, lend money out more quickly. That's kind of the mundane way in which things will change. But more critically, I think the IMF has probably come round to believing that it has to have a lighter hand in its dealings with countries. No longer can the IMF be terribly ideological about what it says.
KELEMEN: This afternoon here in Washington, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, announced a new program to get cash quickly to developing countries and without the usual conditions that come along with such loans.
Dr. DOMINIQUE STRAUSS-KAHN (Managing Director, International Monetary Fund): It's a new process which has been designed very rapidly. And it shows that the fund is able to react very quickly and decisively to help its membership.
KELEMEN: He says countries need to have a good track record to apply. And though he didn't name countries seeking such loans, IMF officials expect the line to be long. Johannes Linn of The Brookings Institution says this is a good time for the IMF to think about ways to give emerging countries a greater voice.
Dr. JOHANNES LINN (Senior Fellow, Global Economy and Development Program, The Brookings Institution): There's also a greater sense of modesty perhaps among IMF colleagues in listening perhaps better to the various stakeholders, their clients, and so on, and fashioning a response in each country that is really more owned, also very importantly, by the governments and the countries concerned. So, yes, I think there is a certain amount of reinvention going on.
KELEMEN: France is proposing a new conference to discuss more broad changes to the fund and other institutions that grew out of the so-called Bretton Woods process after World War II. The Bush administration has agreed to host a meeting of the world's biggest economies next month and will include emerging powers like China and India. But U.S. officials are already trying to downplay expectations for the November summit. Michele Kelemen, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
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