Did Anything Happen In Istanbul?

Sunday’s communique from the International Monetary and Financial Committee (of the Board of Governors of the International Monetary Fund) is incredibly bland, even by their usual standards.  The degree of self-congratulation and complacency is slightly less pronounced than what we saw from the G20 in Pittsburgh, whose final statement contained a classic moment of hubris when the entirety of paragraph 5 read: “It worked.”

Still, the IMFC (representing all IMF member countries) seems to be in the same cloud cuckoo land as the G20 leaders.

This is not surprising, as the IMF appears to be increasingly under the auspices of the G20 – despite the fact that this is extremely awkward from a formal governance point of view.  The IMF has 186 members; the G20 has 19 or perhaps up to 25, depending on how many Europeans manage to gate crash on a continuing basis.  Who elected the G20 to run the world?

Perhaps this arrangement would be tolerable if the G20/IMFC had an agenda for really avoiding a recurrence of our recent financial crisis and crash, but they do not.

“We will remain vigilant to prevent financial sector excesses and reaccumulation of unsustainable global imbalances.” (paragraph 2) is about the scariest wording you can imagine in this context.  Do you really think the financial sector respects or will even notice official “vigilance”?  They are giggling on Wall Street.

And, in this context, is reference to “global imbalances” anything other than a smokescreen (or another strange kind of joke) – see our Washington Post online column, for more on this point.

“We intend to adopt an open, merit-based and transparent process for the selection of IMF management at our next meeting” (paragraph 5) is moderately interesting, but only because it appears to step back from committing to appoint a non-European (and non-US) person as the next managing director of the IMF.  The current incumbent is presumed on his way to campaign for the presidency of France (and as a smart politician, likely wants to quit while he’s ahead), and appointing a replacement from India, China, Brazil, or another major emerging market could be a significant move.  But signs, behind the scenes, from both Europe and the White House are not exactly encouraging in this regard; they just don’t want to give up “jobs for the boys” and the option value that creates – in some future crisis, you might want your guy in the managing director job, which comes with great discretion and no constraints under the usual rule of law.

The quota reform (paragraph 4) adds nothing new, and certainly not enough to really restore Asian confidence in the IMF.  The Flexible Credit Line (paragraph 9) is a sensible and long overdue innovation.  But why has it been taken up by only three countries (Poland, Mexico, and Colombia)?  Unless there are more customers in the pipeline soon, the lack of use for this facility will further underline the IMF’s continuing issues with legitimacy among emerging market member countries.  Tripling the IMF’s resources (paragraph 8) could only help stabilize the world’s economy if countries are willing to borrow on a precautionary basis or when they first come under pressure.

And, given the clear international commitment not to tackle growing problems in the global financial system, intense pressure is what we should expect.

By Simon Johnson

11 responses to “Did Anything Happen In Istanbul?

  1. You know something is wrong when William Burroughs got more accomplished in Istanbul than you did.

  2. Well, I don’t see what these international bodies can do other than churn out stale butter, since the rich countries are absolutely committed to empowering the finance rackets and have sacrificed all other interests to this one.

    A thing like the IMF can never have any power beyond what the US, the EU, and now the G20 want to allow it, so it’s always just along for the ride.

  3. “Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.” The Independent


    Perhaps this is what happened in Pittsburgh and Istanbul. Is The Independent/UK a reliable source?

  4. Regarding your WaPo column linked from this post, you seem to be saying that the _only_ problem has been the dysfunctional financial system.
    Is there room in your narrative for the impact of stagnant wages that led consumers to do the borrowing to help make up the difference? Not quite a “gun to the head,” but it may have made it even easier for the financial sector to prey on the wider economy. Thoughts?

  5. Sorry to be off-topic, but I really think that Simon Johnson, as an advocate of nationalization, should talk about this article by Ryan Lizza from the New Yorker:


    It is basically a hagiography of Larry Summers and how he was right not to recommend nationalization to Obama.

    Apparently this piece of corporate propaganda has already convinced some commentators (including Felix Salmon) that the Obama administration did everything right:

  6. That’s a great link Jessica. I don’t know if The Independent is very reliable, but the article SEEMS logical and well written. I would guess they wouldn’t have much reason to mislead people on that, because it isn’t that good for Britain either. They’ve dragged their feet kicking and screaming a long time NOT to change to the Euro. It wouldn’t be so bad if we had a solid banking system with good regulations, but it’s a little bothersome long-term with our (American) debt situation.

  7. Russ has a good point. However, it may be the “rules of the game” are changing more rapidly than expected.Asian confidence in the IMF may be a smoke screen as perhaps the more powerful of the Asian faction are using IMF rhetoric in their goal to move away from the USD as a reserve currency. Jessica provides a good link- however- following tiny blurbs over the past two years, one will read where this move to settle oil in other than USD has been “on the agenda but behind the scenes” with many strategic moves & alliances forming towards this end for some time.
    A house is being built- the foundation is under construction- one brick at a time.

  8. Bill Gilwood

    See today’s 10/6

    Is the Sky Really Falling?
    Dollar Hysteria

  9. Bill Gilwood

    In the WAPO column no mention is made of the fact that aside from the FIRE sector, there just isn’t much else to invest in in the US. For instance, how could you invest in manufacturing in the US given the trade practices of the US’s trading partners?

  10. This is both interesting and hugely disturbing. It seems that the same level of “capture” of the fiscal (both national and international) high ground is complete. Not only can we not expect meaningful reform or reining in of the national financial oligarchy, but it seems apparent now that the international financial apparatus has been completely coopted as well. This is even more disturbing, since it seems likely that a global recovery will be highly reliant on further growth of the underdeveloped and emerging economies, likely not to happen if the G20 finds it vital to continue to control (and suppress) them.

    Maybe we are on the way to a fully globalized machiavellian takeover, like the crazy conspiracy theorists have been warning for years. And, it is not even happening secretly, but by subtle and not so subtle machinations of the ruling international elitists. It sounds as though we all may be headed back about 100 years as cultures, or maybe into the Middle Ages.

  11. Simon,
    I want it back.

    How do we get the money back?