The IMF: Is There a Doctor in the House?
The IMF is one of the most misunderstood (and poorly explained, to spread the blame a bit) institutions in finance. This week, while I was in New York, it was thrust into the spotlight as quickly as Dr. DSK was removed from his flight at JFK. However, the longstanding critique of the IMF has been that its terms – rather than its politicians – have been invasive.
The IMF’s role is more akin to that of the casualty ward physician than that of the general practitioner. And, as any doctor will tell you, elective surgery is far more profitable (and popular) than necessary surgery. However, in the medical field, few people who’ve just been hit by cars suddenly decide that while the doctors are in the chest cavity stopping the bleeding, some breast implants would be nice. Yet, this is precisely what happens in the IMF’s world of rescue finance; politicians spend out of recession doing popular, grossly inefficient things with their new capital. There are many theories on IMF motives for intervention, but I think it is safe to say the IMF has never intervened hoping to help someone host the Olympics.
Arguably, the “patients” are part of the problem. Because the IMF has among its goals to foster democracy in the places it intervenes, it tends to value democratic stability. Unfortunately, local politicians often convince the IMF that their own hobbies, frolics, and endeavours are necessary to maintain stability. The IMF realises this flavour of manipulation occurs, and instead takes its pound of flesh from the future – this has less of a destabilising effect on incumbent politicians and around-the-corner elections, but can have a devastating effect on “civilians” down the road.
But the financial surgeons are not without blame – any doctor knows that the patient asks for the morphine rather than asking for the prick of the needle. It is the method of administering the remedies to financial disease that is painful, not the remedy itself. This can be seen in the situation the PIGS face today: the pain is not in the condition of austerity, but rather in the process of becoming more austere. The same is true of the reforms made in the BRIC countries. The same is true of the steps taken to slow and, later, repair the Asian crisis. A financial malaria carried by mosquitoes breeding in pools of stagnant debt, the disease has adapted more quickly than medications can be invented. Only with relentless capital infusion, a decade of subsidized bank operations, and unsustainable interest rate policy was complete disaster averted; we have, in macroeconomics, no stronger treatment than what was administered in Asia, and the patient nearly died anyway.
The IMF must recognize its patients today increasingly have slowly-manifesting cancers. Occasionally, someone still staggers in mauled by a bear (market), but these events are (thankfully) less prevalent. At the core of the IMF's policy dilemma is latency: its interventionist access-to-capital terms and restructuring conditions often stretch far into subsequent political dynasties and epochs of prosperity. And if Dr. DSK, a man who experienced the change of moving house from Morocco to Monaco in the dark days of the former and the heyday of the latter, can’t appreciate the differing needs of disparate economies, then it is time for a change of management regardless of what happened in that New York hotel room. I, and other economists, worry not only about what will be prescribed for the next generation of cancer patients, but whether new strains of the disease will continue to respond to the same elixir.
