Tag Archives: imf

Perhaps The Most Boring Important Topic In Economics

By Simon Johnson

International economic policy making is a contender for the title of “most boring important topic” in economics.  And within the field there is nothing quite as dull as the International Monetary Fund (IMF).  Try getting an article about the Fund on the front page of any newspaper.

And even for aficionados of the Fund, the issues associated with reforming its “quota” and “voting rights” seem arcane – and are fully understood by few.

Dullness in this context is not an accident – it’s a protective wrapping against political interference, particularly by the US Congress.

Now, however, the IMF needs a change in its ownership structure, and the sole remaining holdup is Congress.

The Obama administration let this issue slide for a long while, and then attempted to link it with financial aid being extended to Ukraine.  That attempt failed last week.

In a column for Project Syndicate, I discuss why this matters and what comes next.  Try not to fall asleep.

Ukrainian Chess

By Peter Boone and Simon Johnson

U.S. Secretary of State John Kerry arrived in Kiev on Tuesday.  The Obama administration is feeling real pressure from across the political spectrum to “do something”, but the US has no military options and little by way of meaningful financial assistance it can offer to Ukraine.  The $1 billion in loan guarantees offered today by Mr. Kerry means very little.

Millions of people have a great deal to lose if the situation gets out of control, and the Russian leadership is behaving in an unpredictable manner.  The sharp drop in the Russian stock market index on Monday morning, alongside an emergency hike in interest rates by the Central Bank, demonstrates that Russia’s financial elite was also caught completely off guard.

Mr. Kerry can and has made threats, but it would be better to join the Europeans in helping to calm the situation.  There is a completely reasonable and peaceful path to a solution available, but only if everyone wants to avoid a major conflict. Continue reading

American Taxpayer Liabilities Just Went Up, Again – Why Isn’t Congress Paying Attention?

By Simon Johnson

Most Americans paid no attention this weekend when the International Monetary Fund announced it was well on its way to roughly doubling the money that it can lend to troubled countries – what the organization calls a $430 billion increase in the “global firewall.”

The United States declined to participate in this round of fund-raising, so the I.M.F. has instead sought commitments from Europe, Japan, India and other larger emerging markets.

At first glance, this might seem like a free pass for the United States. The additional I.M.F. lending capacity is available to euro-zone countries that now face pressure, such as Spain or Italy, so it might seem that global financial stability is increased without any cost to the American taxpayer.

But such an interpretation mistakes what is really happening – and actually represents a much broader problem with our budgetary thinking. The I.M.F. represents a contingent liability to taxpayer sin the United States – much as the Federal National Mortgage Association (known as Fannie Mae) and Freddie Mac (formerly the Federal Home Loan Mortgage Corporation) have in the past — and as too-big-to-fail mega-banks do now. Continue reading

Will The IMF Save The World?

By Simon Johnson

The finance ministers and central bank governors of the world gathered this weekend in Washington for the annual meeting of countries that are shareholders in the International Monetary Fund.  As financial turmoil continues unabated around the world and with the IMF’s newly lowered growth forecasts to concentrate the mind, perhaps this is a good time for the Fund – or someone – to save the world.

There are three problems with this way of thinking.  The world does not really need saving, at least in a short-term macroeconomic sense.  If the problems do escalate, the IMF does not have enough money to make a difference.  And the big dangers are primarily European — the European Union and key eurozone members have to work out some difficult political issues and their delays are hurting the global economy.  But, as this weekend’s discussions illustrate, there is very little that anyone can do to push them in the right direction. Continue reading

Christine Lagarde And The Demand For Dollars

By Simon Johnson

After receiving US support at the critical moment, Christine Lagarde was named Tuesday as the next managing director of the International Monetary Fund.  In campaigning for the job, Ms. Lagarde – the French finance minister – made various promises to emerging markets with regard to improving their relationships with the IMF.  But such promises count for little and the main impact of her appointment will be to encourage countries such as South Korea, Brazil, India, and Russia to back away from the IMF and to further “self-insure” by accumulating larger stockpiles of foreign exchange reserves – the strategy that has been followed by China for most of the past decade.

Seen from an individual country perspective, having large amounts of dollar reserves held by your central bank or in a so-called sovereign wealth fund makes a great deal of sense; this is a rainy day fund in a global economy prone to serious financial floods.  But from the perspective of the global economy, such actions represent a major risk going forward – because it will further push down US interest rates, feed a renewed build up in private sector dollar-denominated debt, and make it even harder to get policymakers focused on a genuine fix to our long-term budget problems. Continue reading

Why Are the French So Determined To Run The IMF – And What Will It Cost You?

By Simon Johnson

Just a few years ago, eurozone countries were at the forefront of those saying that the International Monetary Fund had lost its relevance and should be downsized.  The organization was regarded by the French authorities as so marginal that President Nicolas Sarkozy was happy to put forward the name of a potential rival, Dominique Strauss-Kahn, to become managing director in fall 2007.

Today the French government is working overtime to make sure that a Sarkozy loyalist and the leader of his economic team – Finance Minister Christine Lagarde – becomes the next managing director.  Why do they and other eurozone countries now care so much about who runs the IMF? Continue reading

The Problem With Christine Lagarde

By Simon Johnson

Ms. Christine Lagarde, French finance minister, is the nominee of the European Union for the recently vacant position of managing director at the International Monetary Fund.  The EU has just over 30 percent of the votes in this quasi-election; the US has another 16.8 percent and seems willing to keep a European at the fund if an American can remain head of the World Bank.  It should be easy for Ms. Lagarde to now travel round the world engaging in some old-fashioned horse trading, along the lines of: Support me now, and I or the French government will get you something suitable in return, either at the IMF or elsewhere.

The contest to run the IMF seems over before it has even really begun.  But Ms. Lagarde has a serious problem that may still derail her candidacy, if there is ever any substantive, open, or transparent discussion of her merits.  There is major design flaw in the eurozone and Ms. Lagarde is the last person that non-European governments should want to put in charge of helping sort that out. Continue reading