Things fall apart, and the IMF rises like phoenix

In 2009, many received wisdoms of late capitalism are crumbling. To mention a few disappointments, which it didn’t take a telescope to see from a mile away,

• No – we haven’t overcome the business cycle.
• Sorry – China and India aren’t gonna drag us out of the recession.
• Nope – deregulation doesn’t bring widespread prosperity.
• Too bad – wealth doesn’t grow on trees or in banks or hedge funds.
• Please – add your own favourite here: __________________________

A crisis is a moment in which illusions or expectations fall apart. In the Nigerian novel “Things Fall Apart”, the patriarchal protagonist Okonkwo confronts a world of changing values (colonialism, Christianity) in which he finds he has no leading role left to play. Rather than adapt to these circumstances, he takes his life.

This pessimistic example, however, doesn’t seem to apply to some international organisations in the current crisis. Rather, after years of seeming anachronistic, the World Bank, IMF, NATO and OECD are experiencing something of a revival – notable absentee: the UN.

According to classical (or vulgar?) institutional theory, institutions persist rather statically until some kind of “critical juncture” suddenly occurs, at which point they disappear or reinvent themselves (or are reinvented). As far as critical junctures go, they don’t get much bigger than the 2007 to 20xx? global capitalist crisis.

As things fall apart throughout the global economic system, international organisations are experiencing the crisis as an opportunity to reinvent themselves (rather than commit institutional suicide). Possibly the largest institutional profiteer of the crisis, so far, is the one least expected: the IMF.

Why the IMF? Perhaps it is the most malleable tool in the G-20 toolbox precisely because it has been on the brink of obsolescence for a decade. Criticised for its failed development policy and mission drift, the IMF doesn’t have much much left to lose. So, when suddenly the G-20 chiefs of government in London decide to revive it and bestow upon it renewed powers as a kind of global financial firefighter, now with 750 million $US at its disposal, Phoenix rises from the ashes. It’s already recently been called upon for help by Iceland, Latvia, Ukraine and Hungary.

But the most interesting part of the IMF’s reinvention lies not in its quantitative growth, but in the qualitative finer print of the report by the G-20’s working group on the reform of the IMF. Points IV 9 and 10 read:

G-20 members call on the Fund to urgently establish more effective crisis prevention and resolution instruments. Such instruments should be attractive to all members […]. G-20 members call on the Fund to continue to review and streamline conditionality…

Cutting through the jargon we see that the organisation previously feared most for the political thumbscrews which came attached to its loans (and therefore used only as a lender of absolute last resort) is turning into a no-questions-asked piggybank for insolvent governments. It’s noteworthy that, incidentally, this is just at a moment in time when rich countries (the IMF’s majority owners) are most likely to need the IMF’s help. However, it’s too bad that it took 25-odd years of failed development in the global South to convince global movers and shakers to reform the IMF – my guess is that by studying Africa, South America and post-1998 East Asia, they’ve learnt that being subject to IMF conditionality isn’t exactly fun, or helpful in conducting anti-cyclical economic policies.

This extract from the report suggests that the IMF’s role change is being bought in return for giving developing countries an increased say in IMF governance:

Quota distribution should more adequately reflect the changing economic weights in the world economy. Emerging markets and developing economies, including the poorest countries, should have greater voice and representation in the Fund, and G-20 members look forward to accelerated progress towards these objectives.

For the global South, one can only hope that the next reform turns out a bit more radical than the last one (see diagram). Poor countries still have a pitiful say in IMF decisions (9 percent), while the USA, Japan, Germany, UK and France alone hold nearly 40 percent.

Change in voting shares during the 2008 reform - note that "emerging and developing countries" include OECD members Korea and Turkey, as well as wealthy Singapore.

(phil)