Rez O. Lewshun
Save the Profession
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more on the IMF.....
Once-Scorned Lender Fashions Rescue Packages for Those With No Alternatives
By BOB DAVIS
WASHINGTON -- After years on the outs with developing nations, the International Monetary Fund is again starting to play a big role in crisis management.
Over the past few days, the IMF has begun to step in with rescue packages for Ukraine, Iceland, Hungary and Pakistan.
View Full Image
Landov Members of various delegations listen as World Bank President Robert Zoelick speaks during the International Monetary Fund and World Bank 2008 Annual Boards of Governors Meeting in Washington on Oct. 13.
Getting to that point hasn't been easy. During the global boom after 2002, governments in Brazil, Argentina, Indonesia and Russia scored big points domestically by paying off IMF debts, sometimes early, and swearing off IMF loans. Many of them fattened their reserves to insulate themselves somewhat from global capital flows, but also to ensure that they wouldn't have to turn to the IMF again in time of crisis.
Brazil was typical. When it paid off the IMF early in 2005, President Luiz Inácio Lula da Silva went on national television to exult that "we can safely say that Brazil can walk with its own legs."
Now, the global economic downturn has brought developing nations back to the IMF's offices in Washington -- largely because they have no alternative.
The turnaround comes at an uncomfortable moment for the IMF as Dominique Strauss-Kahn, managing director of the fund, is trying to survive a scandal stemming from an affair he had with a female subordinate. A law firm retained by the IMF is investigating whether he abused his power in connection with the relationship and is expected to report its findings over the next few days.
Mr. Strauss-Kahn on Wednesday said he would sue anyone passing malicious rumors about him. "I have been instructed by Mr. Strauss-Kahn to sue for libel anyone peddling rumors about my client," said Mr. Strauss-Kahn's French lawyer, Jean Veil. He said the warning was aimed at the French, not at IMF staffers who might have information about Mr. Strauss-Kahn.
Since the 1980s, the IMF has played a major role in Latin America, bailing out Argentina, Brazil and Mexico when they were on the brink of bankruptcy. The apex of its power was the 1997-98 Asia financial crisis, when Thailand, Indonesia, South Korea, Russia and Brazil turned to the IMF, with a strong assist by the U.S. Treasury, for rescue packages of tens of billions of dollars each.
While those nations eventually started growing rapidly again, the IMF's tough requirements for loans -- slash budgets, privatize industries, open markets -- produced a global wave of resentment. IMF lending dropped to about $2 billion last year, down from about $32 billion in 1998, at current exchange rates.
For the past year or so, the IMF had forecast that countries in central and eastern Europe were likely to run into trouble because they had wide trade deficits and were deeply indebted.
Now those countries are stumbling badly, and the lending so far in 2008 has bounced up to $5 billion. Over the past year or so, for instance, Pakistan's economy crumbled because of sagging foreign investment due to terrorist attacks, big budget deficits and diminished exports. They scrambled for relief from China and the U.S. When that didn't come through, top officials turned to an IMF loan as a "Plan B."
Mr. Strauss-Kahn said that an IMF mission will begin discussions with Pakistani authorities in the next few days "on a program aimed at strengthening economic stability and enhancing confidence in the financial system."
Within the IMF, senior officials are sketching out plans to make the IMF a power again in global financial issues by making it a center of analysis and recommendations for new financial arrangements. Britain and other European countries are pushing for a more-central role for the IMF, against the wishes of the U.S.
In the past, the U.S. has been able to sideline European efforts to boost the IMF's role, but the financial crisis, which started in America, may have weakened Washington's hand.
—David Gauthier-Villars in Paris contributed to this article.
- OCTOBER 23, 2008
Once-Scorned Lender Fashions Rescue Packages for Those With No Alternatives
By BOB DAVIS
WASHINGTON -- After years on the outs with developing nations, the International Monetary Fund is again starting to play a big role in crisis management.
Over the past few days, the IMF has begun to step in with rescue packages for Ukraine, Iceland, Hungary and Pakistan.
View Full Image
Landov Members of various delegations listen as World Bank President Robert Zoelick speaks during the International Monetary Fund and World Bank 2008 Annual Boards of Governors Meeting in Washington on Oct. 13.
Getting to that point hasn't been easy. During the global boom after 2002, governments in Brazil, Argentina, Indonesia and Russia scored big points domestically by paying off IMF debts, sometimes early, and swearing off IMF loans. Many of them fattened their reserves to insulate themselves somewhat from global capital flows, but also to ensure that they wouldn't have to turn to the IMF again in time of crisis.
Brazil was typical. When it paid off the IMF early in 2005, President Luiz Inácio Lula da Silva went on national television to exult that "we can safely say that Brazil can walk with its own legs."
Now, the global economic downturn has brought developing nations back to the IMF's offices in Washington -- largely because they have no alternative.
The turnaround comes at an uncomfortable moment for the IMF as Dominique Strauss-Kahn, managing director of the fund, is trying to survive a scandal stemming from an affair he had with a female subordinate. A law firm retained by the IMF is investigating whether he abused his power in connection with the relationship and is expected to report its findings over the next few days.
Mr. Strauss-Kahn on Wednesday said he would sue anyone passing malicious rumors about him. "I have been instructed by Mr. Strauss-Kahn to sue for libel anyone peddling rumors about my client," said Mr. Strauss-Kahn's French lawyer, Jean Veil. He said the warning was aimed at the French, not at IMF staffers who might have information about Mr. Strauss-Kahn.
Since the 1980s, the IMF has played a major role in Latin America, bailing out Argentina, Brazil and Mexico when they were on the brink of bankruptcy. The apex of its power was the 1997-98 Asia financial crisis, when Thailand, Indonesia, South Korea, Russia and Brazil turned to the IMF, with a strong assist by the U.S. Treasury, for rescue packages of tens of billions of dollars each.
While those nations eventually started growing rapidly again, the IMF's tough requirements for loans -- slash budgets, privatize industries, open markets -- produced a global wave of resentment. IMF lending dropped to about $2 billion last year, down from about $32 billion in 1998, at current exchange rates.
For the past year or so, the IMF had forecast that countries in central and eastern Europe were likely to run into trouble because they had wide trade deficits and were deeply indebted.
Now those countries are stumbling badly, and the lending so far in 2008 has bounced up to $5 billion. Over the past year or so, for instance, Pakistan's economy crumbled because of sagging foreign investment due to terrorist attacks, big budget deficits and diminished exports. They scrambled for relief from China and the U.S. When that didn't come through, top officials turned to an IMF loan as a "Plan B."
Mr. Strauss-Kahn said that an IMF mission will begin discussions with Pakistani authorities in the next few days "on a program aimed at strengthening economic stability and enhancing confidence in the financial system."
Within the IMF, senior officials are sketching out plans to make the IMF a power again in global financial issues by making it a center of analysis and recommendations for new financial arrangements. Britain and other European countries are pushing for a more-central role for the IMF, against the wishes of the U.S.
In the past, the U.S. has been able to sideline European efforts to boost the IMF's role, but the financial crisis, which started in America, may have weakened Washington's hand.
—David Gauthier-Villars in Paris contributed to this article.
