As they filed past the marble fountains into the IMF's vast beige headquarters in Washington last weekend, many of the global economy's most powerful figures were probably asking themselves the same question: "What are we doing here?"
The IMF and World Bank spring meetings are a ritualized chin-wag between finance ministers, central bankers and policy wonks about the state of the global economy. With the cooperative days of the postwar Bretton Woods agreement long gone, those who attend these jamborees now tend to spend their time lecturing each other about their economic policies, while the staff of the IMF and World Bank spew out reports, announcements and policy papers.
Mervyn King, the governor of the Bank of England, who makes the twice-yearly pilgrimage to the IMF, is just one of several members who have voiced disquiet about the effectiveness of a body forged in a simpler world. He used a speech in February explicitly to ask the question, "Do we need an IMF?"
The UK's finance minister, Chancellor Gordon Brown, too, this weekend called for the body to be remodeled, saying there was a "mood for change" in Washington.
"What we are talking about is fitting the IMF for the needs of the global economy in a rapidly changing world," he told journalists.
But few observers were optimistic about the prospects for reform.
Many of the themes of last week's meeting were wearily familiar to regular attendees: The IMF warned its members that global imbalances were unsustainable; that oil prices were worrisomely high; and that governments should guard against the lure of populist protectionism and fly the flag for globalization.
Its analysis may be correct, but the problem for the IMF is that, if they don't like what it's got to say, member countries simply ignore it. The Bush administration responded with defiant fury to the IMF's claim last week that its plan to cut the budget deficit was "unambitious," while Brown has repeatedly rejected its analysis of Britain's public finances.
Soul-searching
That impotence -- and the skepticism of many of its members -- hasn't gone unnoticed inside the IMF, which has been engaged in a particularly frank bout of soul-searching over the past two years, since its Spanish managing director, Rodrigo de Rato, took over.
The sprawling lender is also worried about its future: With many of the loans it has made to tide countries over financial crises now paid back, its income is set to fall over the next few years; and the US Treasury, just a few blocks away, has made no secret of its desire for a more streamlined, focused fund.
One of King's key arguments is that little can possibly be discussed or decided in full IMF meetings involving more than 180 members; while the smaller groupings which have been formed over the years, most importantly the G7 group of wealthy nations, now look embarrassingly anachronistic.
In his speech, King recalled the G7 meeting of February 2004, held in Boca Raton, Florida, when the main issue on the agenda was global imbalances, but "as we looked around the table, it was obvious that some of the key players, including China and India, were not present."
Few in Washington last week doubted that the economic significance of anything said at the IMF was dwarfed by events at the White House, where US President George W. Bush was entertaining Chinese President Hu Jintao (
Stephen Roach, chief economist at Morgan Stanley, has argued that if G7 membership is to reflect contemporary reality, individual European nations would have to be ejected in favor of a single EU representative, and India and China given seats.
In this skeptical climate, the IMF used last weekend's meetings to launch its own plans for bringing itself into the 21st century, including reforming voting rules to give developing countries a better say in decision-making, and convening smaller, more streamlined groups to discuss pressing policy issues.
Those nostalgic about the grand ideals of the fund's birth, at the hands of John Maynard Keynes more than 60 years ago, will have been encouraged by the enthusiasm of its chief economist, Raghuram Rajan, for a new "policy framework."
Under his plan the world's great economic players would agree what actions need to be taken to redress the imbalances in the global economy (including, he believes, a depreciation of the dollar, market reform in Europe and Japan and the floating of the yuan), and monitor each other's effectiveness in carrying out the plans.
The IMF would act as the broker for this new economic pact -- in King's words, "not so much the referee brandishing the yellow and red cards of the football pitch, more the cricket umpire warning the players not to attack each other verbally and making it clear publicly when they believe the players are not abiding by the spirit of the game."
The economic rationale for such economic peer pressure is strong, as the IMF argues at length in the World Economic Outlook. Although the world's economy is going through what Rajan calls an "extraordinary purple patch," set to grow at more than 4 percent a year for the fourth successive year, there are clouds on the horizon.
The US's enormous current account deficit will have to be unwound eventually: Like anyone living beyond their means, it will have to have a day of reckoning.
Downturn warning
The IMF warned again last week that without co-ordinated action to bring the value of the dollar down smoothly, and boost growth in Europe and Asia to compensate for slower growth in the US, there is an increased chance that the imbalances may unwind suddenly, leading to a devastating global downturn.
A new global compact, Rajan explained last week, "would reassure financial markets that a policy framework supporting adjustment is in place, thus limiting the risk of an abrupt and costly, market- induced, adjustment. Second, it would indicate that the imbalances are a shared responsibility and help prevent concerns about imbalances degenerating into protectionism."
As his warning about protectionism implies, however, the politics of the IMF's proposals for its future are very different from the economics. Hu's visit to the US last week was charged with such significance because of the angry protectionist rhetoric of some in the US Senate about what they see as the unfair practices of China's experiment with capitalism. And whatever the IMF's pleadings about "shared responsibility," politicians tend to spend IMF meetings chastising others for their lack of action, rather than signing up to ambitious proposals their own electorate will have to swallow.
But time may be running out for the IMF to step in as the savior of the global economy: Long-term interest rates in the US began to rise in the past few weeks, signaling, some analysts believe, that the tectonic plates of the global economy are beginning to shift.
Meanwhile, a wave of protectionist rhetoric in recent months seems to suggest governments are far more likely to opt for mud- slinging than pact-making. Rajan himself evoked the possibility of 1930s-style beggar-thy-neighbor policies causing the world to swerve away from globalization.
Last weekend may have been a step towards a new, positive IMF, which will help countries to help themselves, and steer the global economy away from a path of self-destruction. But as finance ministers get back on their aircraft, confident that they have defended their own policies against meddling, it's a good bet that at their next meeting, in Singapore, in six months' time, they will still be asking themselves what the point of it all is.
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