Emergic: Rajesh Jain's Blog

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IMF’s Challenges

April 25th, 2006 · No Comments

WSJ has an interesting article on the challenges facing the International Monetary Fund:

the IMF faces a novel predicament: A robust global economy, growing at a 4% clip since 2003, has left the IMF with a dearth of financial firestorms to manage, and fewer countries willing to borrow from it and heed its dire lending conditions. Flush with cash and eager to regain control over their economic policies, 10 countries, from Russia to Brazil to Argentina, have repaid loans to the IMF ahead of schedule in recent years. The IMF’s current loan portfolio of $35 billion is its smallest since the 1980s.

The effect is twofold: A shrinking loan portfolio greatly diminishes the IMF’s influence over global economic policy. IMF loan disbursements are conditioned on the enactment, within defined time frames, of measures including privatization of state-owned companies, budget cuts, interest-rate increases and stiffer financial regulation. Once IMF loans are ended, the momentum for economic reform in one-time borrowers may fizzle. That’s a worry in Latin America, especially where populist politicians are winning power across the continent.

Fewer loans also means less interest income, and thus fewer dollars in the IMF coffers. In an irony that has provoked tittering among many emerging-market finance ministers, the agency that has long preached belt-tightening now must practice it itself.

Tags: General

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