The International Monetary Fund
Back from the dead
But the IMF is not quite ready for the future
THE International Monetary Fund has had a good crisis. Two years ago the world’s main international economic institution was heading for irrelevance, its homilies ignored by rich countries, its advice despised in poorer ones and its lending unnecessary in a world flush with private capital. Today the fund is widely hailed as a flexible and innovative crisis-responder. It has committed over $160 billion in a host of new loans and credit lines, up from barely more than $1 billion in 2007. Its lending capacity is being trebled to $750 billion.
This warp-speed revival is the result, in part, of good luck. The sudden slump in private capital flows after the collapse of Lehman Brothers a year ago was calamitous for many emerging economies, but it was a powerful reminder of the importance of an official emergency lender. Good leadership has also played a role. Dominique Strauss-Kahn, the former French finance minister who took the IMF’s helm in November 2007, has shown a boldness and political deftness his predecessors lacked. His Keynesian instincts (he hails from France’s Socialist Party) proved right for the times. His call for a global fiscal stimulus in January 2008, for instance, now seems prescient. He has pushed through reforms that allow the fund to dole out large amounts of money fast, while convincing a broad array of countries, including rising powers like China, India and Brazil, to contribute to its coffers (see article).
By and large this transformation should be celebrated. The world economy is better off with an IMF that has the wit and wherewithal to act fast in a crisis, and which is respected, not reviled, by its clients. If emerging economies regard the IMF as a dependable source of cash in a crisis, they might be less inclined to insure themselves against trouble by building up huge foreign-exchange reserves—as many have done over the past decade. That, in turn, would lead to more balanced global growth. Mr Strauss-Kahn, a staunch advocate of this logic, wants the fund to get much bigger, to perhaps $2 trillion.
Nonetheless, there are risks in the fund’s rapid revival and Mr Strauss-Kahn’s expansive vision of its future. The IMF has become relevant by lending freely, quickly and with few strings attached. But because the organisation is still dominated by rich-country governments, emerging economies are unlikely to rely on it as a lender of last resort unless there are clear rules that promise free lending in future panics. Such promises, though necessary to convince the prudent to rely on the fund, will however tempt some countries to run profligate policies. At the same time the fund still has no clout over countries it does not lend to, even if their policies hurt the global economy (as the excess build-up of reserves, especially in China, surely did). This poisonous combination could fuel instability rather than assuage it.
Move over, Belgium
Striking the right balance between being a credible lender of last resort and an effective policy policeman is hard. But it is made all the harder by the institution’s governance. Rich countries, especially in Europe, wield disproportionate clout. Belgium has more votes than Brazil. China and India have paltry shares. The process of revamping countries’ quotas (which determine their role in the fund) and reforming its executive board to reduce the number of Europeans has been far too slow, not least because many Europeans are fighting hard against any loss of clout. That is shamefully short-sighted. Fixing the IMF’s governance and giving emerging economies more say are prerequisites if the fund is to build upon its newly acquired relevance. Those tasks should be high on the G20’s agenda when it meets in Pittsburgh next week.
Iran
Still angry
Iran's anti-government protesters take to the streets again
JERUSALEM Day, a traditional time for fellow Muslims to show solidarity with the Palestinians, provided the opportunity for the Iranian opposition’s first big march for several weeks. People sneaked green ribbons into their pockets, anxious to demonstrate their support for Iran’s Green Wave opposition movement but equally keen to avoid a beating from government militia. But as the crowds swelled, people became bolder and anti-government chants rang out.
Hardliners in the government did their best to intimidate their opponents in the days before the demonstrations on Friday September 18th. Rumours circulated that opposition leaders such as Mir Hossein Mousavi, who says he won the disputed presidential election in June, and Mehdi Karroubi would be arrested. The Revolutionary Guards made threats against “rioters” who might abuse the day with their protests. Ayatollah Ali Khamenei, Iran’s supreme leader, gave warning that Jerusalem Day belonged to that city alone and that no other slogans were to be used.
But this year, the day was co-opted by the opposition. The rallies did not draw the hundreds of thousands who poured onto the streets after June's elections, but the crowds were different from the usual small groups of pro-government supporters who fill the streets to protest against Israel and the West. On Friday cries of “Death to Russia” and “Death to China” replaced the usual chants against Israel and America, in response to warming attitudes by those countries to Mahmoud Ahmadinejad's regime. Shouts of “not Gaza, not Lebanon, I'll only give my life for Iran” showed that the Iranian government's hope that the day only celebrated solidarity with the Palestinians was in vain.
Mr Ahmadinejad did his best to deflect attention from the political unrest still rumbling in Iran. His speech on Friday revived his favoured vitriol against Israel and questioning of the Holocaust. This kind of posturing plays well with many of his supporters but, during an outdoor interview broadcast on Iranian state television after his speech, shouts of “Ahmadi, Ahmadi resign!” directed at the president could be heard clearly.
Meanwhile, in his address for Eid al-Fitr, the festival marking the end of Ramadan, the Muslim month of fasting, Mr Khamenei seemed anxious to shore up his own position, shaky since his overt support for Mr Ahmadinejad after the disputed presidential election. He proclaimed defensively that the West had failed in its attempts to undermine Iran’s government with opposition rallies on Friday.
As Mr Ahmadinejad prepares to go to New York for the United Nations’ General Assembly, he leaves behind him a country still seething with frustration and opposition to his government. Iran’s nuclear programme will be at the forefront of discussions. As relations between Russia and America are appearing to thaw after Barack Obama’s calls to scrap a missile-defence shield in Poland and the Czech Republic, Iran will be watching carefully to see if Russia is any more willing to join America in criticising its nuclear and missile programmes.
At the same time Iran continues to downplay the threat it poses. In an interview last week with NBC, an American television network, Mr Ahmadinejad avoided direct questions about Iran’s nuclear programme, saying that Iran saw no need for any such weapons. And on Sunday Mr Khamenei blasted America’s missile-defence plan, describing the West’s fears over potential Iranian nuclear weapons as “pure fabrication” on the part of America.
Mr Ahmadinejad’s trip to New York may affect his image at home. There seems little doubt that his speech to the UN General Assembly will contain the customary fiery bombast that has proved popular among Iranians in the past. Though many Iranians thoroughly dislike their belligerent president and are embarrassed by his posturing, playing up to Iranian national pride and the country’s desire to stand up to meddling foreign powers has served him well in the past. So too have his calls for Iran’s rights to nuclear weapons.
He will hope to take advantage of this again at the UN this week. But as the protests against his government show no signs of dying away and as many of his opponents remain locked up, people in Iran will be less worried about their rights to nuclear weapons and more concerned about their political rights at home.
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