MONEY AND TOUGH LOVE: ON TOUR WITH THE IMF
The International Monetary Fund (IMF) has managed to remain cloaked in secrecy despite being constantly in the public eye. As a multinational organisation with 188 member nations, the IMF is referenced in every financial crisis. Its biennial summits are attended by the who's who of global finance. The World Economic Outlook and the annual country reports are obsessively dissected.
Yet very few people understand what the IMF does and how it does it. Its compulsively secretive culture has spawned many weird conspiracy theories about its "real ownership". The Rothschilds, the Freemasons and the fabled Illuminati have all been dragged in, and it would be fair to say that the IMF is viewed with fear and suspicion by many people.
Writers in Residence (WiR), a non-profit "devoted to recording and describing the institutions of the modern world", commissioned Liaquat Ahamed to demystify the Fund. The Pulitzer-winning economic historian was permitted to embed with the IMF after Mme Lagarde decided he "wasn't a troublemaker". Mr Ahamed says his personal association with the IMF started as many as 36 years ago, when he met his wife-to-be at the IMF headquarters.
Disappointingly for those who enjoyed the magisterial Lords of Finance, Mr Ahamed stuck faithfully to WiR's rather lightweight brief. The book is written for lay audiences in Mr Ahamed's trademark easy style. The layout reflects that, with excellent photographs sprinkled across a wide octavo format (10 inches X 7.5 inches).
There is a description of the IMF's methods of functioning in four situations, each in a different locale. But there is never a zoom into details. One location is the Washington headquarters, where the multinational staff of 2,500 attends to the daily grind of number-crunching and policy-wonking.
Mr Ahamed also wrote a diary of the 2012 Tokyo IMF Summit, the latest of the Fund's biennial financial melas.
He also accompanied the 2012 IMF mission to Ireland, though he wasn't privy to actual discussions between the mission and the Irish government. Both sides debriefed him off the record, but he glosses over insights gleaned about the negotiating process. He also spent time wandering around Dublin, chatting to locals (including the statutory cabbie). The fourth location was Maputo in Mozambique, where he ate grilled prawns as he watched the IMF brace for a potential bailout.
The author is both entertaining and meticulous in explaining the background and the atmospherics of these situations. He analyses the causes of the Irish crisis, for example, with the incisive competence one expects. He looks at Mozambique dispassionately in the context of similar countries that have "failed" or "succeeded". The reader is left unsatisfied only because the hors d'oeuvre of the background briefings are not followed by les plats principaux.
The book does outline the Fund's history, and this is right up Mr Ahamed's street. He segues naturally into describing the establishment of the Bretton Woods twins, the World Bank and the IMF. While the Bank was supposed to help with post-war reconstruction, the Fund was created as a watchdog of the international financial system. The IMF's first role was to prevent a recurrence of the deep freeze of the Great Depression, when global trade collapsed. Of course, it has now evolved in a different direction.
John Maynard Keynes was one of the IMF's two godfathers. The other was Harry Dexter White, then the assistant secretary of the United States Treasury. White was expected to chair the IMF, since (as with the World Bank) the United States was the largest contributor. Bizarrely, White was thought to be a Soviet spy, a suspicion confirmed in the 1990s when the relevant Union of Soviet Socialist Republics, or the USSR, archives were declassified. The Americans ducked potential awkward questions by opting for a European managing director and this became the norm.
In the 1950s, the IMF helped manage currency rates. In the 1970s, as currencies were floated, it metamorphosed into its current role. It had to provide money and tough love to European nations hit by the oil shocks of 1973 (and 1979). The "loans with conditions" formula was developed and refined during that decade.
Each financial crisis since has seen different supplicants. The prescriptions have varied. Europe needed bailouts in the 1970s, Latin America in the 1980s. Then eastern Europe and the East Asians, and now, Europe again. The Fund's resources max out at less than $1 trillion, modest by 21st century standards. (The current exposure is somewhat over $200 billion.)
The IMF's prescriptions have often been compared to emergency medical treatment and the conditions often cause resentment. No nation likes being told to tighten its belt, and Argentina, for example, has turned default into an art form. The IMF does also get both its diagnoses and its prescriptions wrong sometimes - notably in the "Asian Flu" of the 1990s.
Despite its unpopularity, or perhaps precisely because of it, the IMF's moral influence counts for more than its credit lines. An IMF package is generally seen as redemptive, regardless of the actual size of the bailout. It is a pity that one doesn't receive much of an insight into the decision-making processes that go into structuring these. However, even in this absence, this book serves as an easily accessible introduction to the world's one and only "Fund".