The Importance of Being Boring

Read Time:4 Minute, 27 Second, DC – The International Monetary Fund is an immensely useful
organization, able to deliver substantial amounts of financial and technical
assistance at short notice to almost any place in the world. It also has the great
advantage of almost always being perceived as incredibly boring.

Unfortunately for the IMF, it now needs a slightly higher public profile to convince
the US Congress to agree to some important reforms. The Ukrainian crisis may prove
helpful, though that appears less likely now – which may be a good thing to the
extent that one unintended consequence could be a loan to Ukraine that is larger
than it really needs.

In the realm of international economics, being perceived as boring confers power to
the extent that it allows major decisions to be made without a great deal of
external scrutiny. From 1918 to 1939, international economic cooperation was hard to
come by – in large part because all of the attempted deals were put together at
high-profile international conferences. Following the creation of the IMF in 1944,
many of the same decisions became routine, a lot less interesting, and much easier
to implement.

The IMF rarely makes front-page headlines in the United States or other big
countries, except when there is a racy personal dimension. The last time that many
read a news story about the Fund may have been when then-Managing Director Dominique
Strauss Kahn was forced out in May 2011, following accusations that he sexually
assaulted an employee in a New York hotel.

Since then, his successor, Christine Lagarde, has helped to restore the Fund’s
reputation – and to return coverage of its programs and activities to newspapers’
dry and unemotional business sections. (When I worked at the IMF in the 2000’s,
page-three coverage of our events by leading newspapers was typically viewed as
preferable to top billing.)

Of course, in countries receiving assistance – such as Greece in the last few years
– the IMF excites great passion. But in the halls of the US Congress, few people pay
any attention.

In the highly charged partisan atmosphere of Washington, DC, this is without
question almost always an advantage. Imagine if the disbursement of all assistance
to countries in trouble required Congressional approval, let alone spending from the
US budget. Nothing good would ever happen – and certainly not for the US.

The IMF is founded on the premise that it represents cooperation between all of the
countries of the world. The reality is that it stands for and operationalizes US
power, in cooperation with America’s closest allies.

Anyone who doubts that should review a recent letter orchestrated by the Bretton
Woods Committee, addressed to Congressional leaders on behalf of an impressive array
of former Republican and Democratic cabinet secretaries. The first paragraph reads,
“The IMF has always been a valuable tool for advancing US national interests

The US does not dictate what happens at the IMF, but it does have a disproportionate
influence. Given the Fund’s origins in helping to rebuild Europe after World War II,
European countries are also very well represented on its executive board and in
terms of ownership shares (and thus voting weight on important decisions).

One major goal in recent decades has been to shift representation at the IMF
somewhat away from Europe and toward the world’s emerging markets. These countries’
global economic and financial significance has grown rapidly, yet they have
relatively little representation at the Fund.

A package of reforms has been agreed. Like most products of international
negotiations, the agreement is not perfect; but it does move the ball forward. (For
the technical details, I recommend a recent paper by Edwin M. Truman, my colleague
at the Peterson Institute for International Economics.)

These reforms need to be agreed, in legislative form, by the US Congress before they
can take effect. For whatever reason, President Barack Obama’s administration did
not push this item hard in 2013 and early 2014 – and the agenda of encouraging
further IMF reform has therefore languished.

The Obama administration proposed to tie IMF reform to the presumably imminent
approval by Congress of funding for Ukraine. This is sensible legislative tactics
but not appealing as an economic strategy. In effect, the administration tried to
make the IMF more interesting, particularly to encourage Republicans in the House of
Representatives to support the reforms.

The latest indications are that the Republicans will not be so enticed. But the
bigger problem is that Ukraine does not really need a massive loan from the IMF.
What Ukraine needs is a sharp reduction in corruption, as well as real legitimacy
(through the ballot box) for people who want to rein in the influence of oligarchs –
a group that has sapped the economy through plunder and incompetence over the past
two decades.

IMF reform is sensible and should be supported. The Europeans do not need their
current level of representation, and the positions and voices of middle- and
lower-income countries should be strengthened.

The Obama administration needs to make this case more directly and forcefully to
Congress. The inherent dullness of the IMF makes that hard.

Simon Johnson is a professor at MIT’s Sloan School of Management and the
co-author of White House Burning: The Founding Fathers, Our National Debt, And
Why It Matters To You.

source: Project Syndicate

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