A new job for the IMF: as global policeman

29 November 2008

The International Monetary Fund was beginning to look like a has-been, says Elliot Wilson, but in the aftermath of the current crisis it may find an important new role

In early November the head of the world’s leading multilateral agency made a remarkable public bid for survival. Speaking in São Paulo, addressing the world’s most powerful finance ministers, Dominique Strauss-Kahn, managing director of the International Monetary Fund, announced that his institution was the right one to lead us out of our financial and economic malaise. Conveniently overlooking some uncomfortable facts — that the IMF must at least share responsibility for getting parts of the world into this soup, and that it failed to predict the coming financial storm — Strauss-Kahn told his audience that the world needed ‘a stronger IMF, particularly as far as early warnings are concerned’.

In this the Frenchman was at least half correct. If this crisis has taught us anything, it is that we desperately need some sort of early warning system for the global economy. All of us — from slack-jawed governments to maxed-out mortgage borrowers — are guilty of succumbing to the idea that this bubble was just part of a natural economic cycle. Clearly it wasn’t, and we were no better braced for its cataclysmic bursting than England was prepared for its massive default to (of all people) Italian creditors in the 1340s, or France and Spain were prepared for their repeated national bankruptcies in the 16th century.

The questions that now have to be asked are these. Who should regulate the world’s financial markets and ring the bell marked ‘impending economic doom’? Will our leaders be able to agree on who is best placed to regulate this new world order? And last but not least, are multilaterals — the big clunking word chosen to describe the assortment of bumbling, anachronistic institutions vested with calming global markets and bailing out troubled nations — really capable of solving our manifold economic woes?

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