A new job for the IMF: as global policeman

Elliot Wilson

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

‘None of us foresaw the magnitude or speed with which subprime led to the financial crisis and put the entire global economy in a tailspin,’ one senior IMF official told The Spectator. ‘Frankly we still don’t understand why it happened. The whole financial system is undergoing a massive heart attack, and we have no idea if we have passed the worst yet.’

When leading multilaterals have hit the headlines in recent years, it has been for all the wrong reasons. Scandals of the flesh at the highest levels of both institutions have angered donor governments. At the IMF, Strauss-Kahn was forced to apologise after conducting an extra-marital affair with a former IMF employee, Piroska Nagy. His future remains unclear. Over at the World Bank, former president Paul Wolfowitz, a Bush-team neocon and architect of the war in Iraq, went a step further, resigning in June 2007 after being found guilty of pushing through a generous pay increase for his girlfriend Shaha Riza, also an employee of the bank.

It might also be argued that our current economic malaise has been at least partly precipitated by the neo-liberal policies of multilaterals of all hues, from the IMF down to relative tiddlers such as the International Finance Corporation. These institutions have long prescribed ultra-free-trade policies, forcing troubled emerging markets and regions — Africa and Latin America in the 1980s, Asia in the 1990s — to undergo financial ‘shock therapy’ in order to gain access to IMF or World Bank capital.

The therapy involves forcing sovereign nations to scrap social benefits and cut public sector jobs while opening up to foreign financial services and instruments. It is notable that two of the countries that have stubbornly held out against integration with the global financial system, China and India, are those least affected by the credit crunch.