A decade ago, the IMF helped to stabilize the world economy after markets collapsed in Latin America, Russia and Asia. Though critics often have rued its interventionism, the fund was widely hailed as a heroic guardian of the global financial system.
Today, the only crisis faced by the IMF is a crisis of identity. Countries rescued in the 1990s have mostly repaid their debts. With a shrunken loan portfolio, the institution that lectures others about finances has lost operating income and is running a deficit. It faces cuts in its staff and salaries and is even considering the sale of its gold bullion reserves.
"What might be at stake today is the very existence of the IMF as the major institution providing financial stability to the world, a global public good," Dominique Strauss-Kahn, a former French finance minister, told the fund's directors last week. "In sum, the two main issues are relevance and legitimacy."
On Friday, Strauss-Kahn is to be named the new managing director of the IMF, succeeding Rodrigo de Rato of Spain, who is resigning. He arrives at a time when the administration of US President George W. Bush, which backed him for the job, has joined a global chorus calling on the fund to rethink its priorities and its governance.
Beyond these difficulties is the question of whether an institution established in the 1940s, an era of fixed exchange rates and capital controls, has a role to play in an era when trillions of dollars flow across borders every day. With its US$300 billion in reserves and credit lines, it hardly has the resources to cope with a major crisis.
new priority
De Rato has said that, with its role in bailing out countries fading, the fund's new priorities should be in urging countries to take action to prevent crises, monitoring the global economy and providing technical assistance.
Fund officials say that Strauss-Kahn is likely to continue these. But his most immediate problems may be the budget of the IMF itself, which is facing staff cuts and possible benefit and salary cuts for its 4,000 employees around the world. The fund, which holds 103 million ounces of gold reserves, worth close to US$70 billion, accumulated over the years, is considering selling some to meet budget needs.
Sales of gold are controversial, with many donor countries saying that the gold belongs to them, not the IMF.
Not least among the other issues to be considered is the way the world's wealthiest countries choose the fund's leader. Since the fund was established after World War II as part of the Bretton Woods postwar economic architecture, its chief is chosen in private by the leading powers in Europe.
After French President Nicolas Sarkozy nominated Strauss-Kahn, his selection was a foregone conclusion. But there is widespread unhappiness and embarrassment among the fund's board members over the clubby nature of the process, especially among the countries in Asia and Latin America bailed out in the 1990s. Many are now export powerhouses sitting on such huge reserves that they no longer need or want the fund telling them what to do.
There are lingering feelings among some board members, especially in the developing world, that the fund joined with the US and other wealthy countries in demanding overly austere budget cuts and other fiscal tightening for the countries that were bailed out in the previous decade.
Russia hoped to capitalize on these feelings by challenging Strauss-Kahn's selection. It nominated its own candidate, Josef Tosovsky, a former prime minister of the Czech Republic, who told the board that, as a "representative of an emerging market transition economy," he would bring a different perspective to the job.
proud
Aleksei Mozhin, the director who represents Russia at the fund, said his country was "very, very proud" to nominate Tosovsky.
"It is an open secret that the fund is barely alive," he added. "It is in the business of survival. The traditional modus operandi of the fund -- you need our money, we tell you what to do -- is gone."
Last year, with US backing, the fund agreed to give more voting shares to China, South Korea, Turkey and Mexico. A plan to further expand the voting shares of these and other emerging economies is still being debated. The Bush administration fears that if such steps are not taken, these countries may break away from the fund.
The administration has also gotten the fund to do more to monitor currency manipulations by trading partner countries, especially China, which Treasury Secretary Henry Paulson Jr. has accused of buying dollars to keep the value of its currency low so that its exports can be sold more cheaply in the US.
As a result of US and European pressure, a panel set up by de Rato called on China this year to end its currency interventions. It also called on Europe to deregulate its economy and on the US to do more to close its looming fiscal deficits in the coming decades.
Paulson has made little secret of his desire for the fund to be more aggressive in pressing China. Treasury officials were irritated this year when de Rato said he could not lecture China any more than he could lecture Bush about the projected cost of Social Security and Medicare.
"We're satisfied that there has been progress on the currency issue," said Clay Lowery, an assistant secretary of treasury for international affairs. "But more needs to be done for the IMF to be as relevant as it has been in the past."
If the fund concentrates solely on monitoring economies and seeking greater disclosure in the world financial system, that would suit some of its critics well.
rethink
Adam Lerrick, an economist at Carnegie Mellon University and the American Enterprise Institute, is among those who say that the IMF needs to rethink its role in that direction.
"Without radical reform, the IMF will soon be totally irrelevant," he said. "The fund should focus on data gathering and the dissemination of financial information. Surprise causes financial crises. The more information markets have, the less likely there will be a crisis."
But many experts also warn that the fund should be kept healthy in order to play a role in a future global crisis, even if rescue operations have to be carried out by other players with larger pools of reserves.
"It worries me a lot when people say the IMF can just go away," said Anne Krueger, a former first deputy managing director of the fund and now a professor of economics at Johns Hopkins University.
"You have to think of the fund as something of an insurance policy for the member countries," she said. "Times are good right now. But there are so many important economic issues that can't be done bilaterally any more. Big countries and small countries recognize that they need the fund."
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