Slush funds

IMF: The International Monetary Fund neither needs nor deserves more money. Its boss, Dominique Strauss-Kahn, wants $250 billion more to add to the IMF’s current $750 billion lending firepower. But the fund has ample capacity still available. Its mixed policy track record also makes its request questionable. Additional subventions to the IMF and other parts of the bloated global public sector risk further economic distortion.

The IMF extended $188 billion in loans in the 18 months between the beginning of the current crisis and the end of April this year. Within its existing resources – already boosted last year – nearly twice as much again is still available, or some $350 billion at the end of March. Admittedly some of these funds are in illiquid currencies. Even so, the fund has dry powder to deal with plenty more crisis-induced problems.

Nor is the IMF’s track record by any means perfect. On the positive side, its loans to Latvia appear to have had the desired effect in encouraging the government’s austerity program, allowing Latvia to maintain its exchange rate parity and to generate the beginnings of economic recovery. Industrial production, for instance, rose 10.9 per cent in the year to May.

In Ukraine, however, IMF inflexibility in 2009 helped destabilize the relatively pro-market government of Yulia Tymoshenko, then prime minister – yet funds have been flowing more freely since Viktor Yanukovich defeated Tymoshenko in presidential elections earlier this year.

In Hungary, by contrast, IMF money helped prolong the life of the profligate government that lost power in April, but has now been at least temporarily cut off for the reformist government of Prime Minister Viktor Orban. Whatever the eventual outcomes, these examples show that IMF funding decisions involve significant political considerations as well as fiscal ones.

Public sectors worldwide have grown greatly during the recent recession, generating huge government deficits and debt burdens and risking the crowding-out of private sector activity. Increasing the IMF’s funding would further expand the role of government - and with funds whose allocation is unaccountable to any electorate, let alone to market forces. Strauss-Kahn’s trillion dollar ambition goes too far.