John Ward Exclusive...IMF tiny in real terms, G20 selfishness and fear, Greece, lacking funds, Larry Summers, Portugal, Spain

IMF: How much help will it really be when the chips are down?


A Slog investigation shows that the IMF in its current form will be irrelevant during Crash 2.

The IMF has just $250 billion pencilled in for financial assistance for the whole of this year. That’s for the whole world of sovereigns, banks and seriously important financial firms – as well as any help the ailing Third World might need.

Last week it withdrew the offer of aid to Hungary, having three days earlier publicly opined that G20 contributions to the Fund were not enough. It doesn’t seem to have occurred to anyone -in print, that is – that this is anything more than ‘they would say that wouldn’t they?’ – the parallel being the military vying for its budget in hard times. At Toronto, the IMF’s viability document told readers

‘…largely reflecting the effect of the crisis, government debt in advanced G-20
countries is projected to rise by almost 40 percentage points of GDP during 2008–2015’

There is powerful evidence in the IMF accounts that the lender is not crying wolf, but genuinely pointing out that, in a serious crisis, it would be as much use as a pin thrown at a steamroller.

Think for a second about, say, bailing out little Portugal. It’s debt to gdp ratio at 9% comes to a little under $2 trillion. Let’s say the EU asked the IMF to take up 30% of the slack on getting that in order: say, halving the debt. At $300 billion, that’s the IMF’s 2010 bailout budget gone. (It is already estimated to have lent Greece some $30 billion).

The IMF’s total resource is $600 billion – which sources suggest it wants to up to $900 billion. Bailing out Spain (even if asked to pick up only 10% of the bust) would zip through the bigger figure. And bear in mind: this is just two probable examples employing very conservative scenarios.

Three quarters of the IMF’s resource is held in members’ currencies….the value of which can go up or down. I don’t know about you, but I’d always assumed that some(body)(thing) was managing that cash to ensure highest net worth. Nope. It sits exactly where it is, the proportions being in line with the gdp of the contributor nation. China’s contributions have thus shot up (as has their value) so this is good news. If there was a collapse in the Dollar, the IMF would implode before it had bailed anyone out.

Ah but, people say, the IMF is the third largest holder of gold. In a crisis, that goes up….so all told it will balance out. Nope. Only 6% of total IMF capital is in gold.

The point of the IMF seems to be twofold. First, to reassure the poorer nations that help is at hand. When it was set up in 1947, the Fund had this very clear remit – and until the 1970s oil crisis its job really did seem to be something like Oxfam in a Brooks Brothers suit. But then, for the first time, western capital lost some of its confidence about never-ending growth and energy supplies. By the mid 1970s, the IMF was bailing Britain out.

By 1998 in fact, the IMF had been given huge resource increases, and a much wider role to be



‘ a lender of last resort to solvent member governments facing liquidity crises’

In short, the West had an attack of ‘charity begins at home’ following that year’s financial crisis – which, from the perspective of today, looks like nothing at all. By 2005, the Friedmanite conservatives were arguing that

‘…. the IMF is a waste of public funds in an age when private capital flows to the developing world have dramatically increased…’

And for those keen on rewriting history, I must also point out that many on the Left believed

‘ the abolition of the IMF would, among other things, create more space for developing countries to pursue alternative economic policies that do not conform with the IMF’s free market prescriptions…’



Polemic debates aside, history seems to suggest that a nervous West redirected the IMF’s purpose during the nervous Seventies – and then the more confident economic conservatives of the Naughties tried to get rid of it.

The net result of this potted history is that the IMF has turned away from the Third World, and is woefully underfunded. In 1989, its fund stood at $130 billion. The massive increases in the world economy’s size alongside the greater scale and broader existence of deficit economics means that to have that clout in today’s money would require more than twice and perhaps three times what the Fund currently holds.

And even then, the point is that the IMF has never in its 63-year existence faced crises like those that seem to loom on every horizon now. In the sort of serious crisis that observers like myself see coming down the road, at its current level the IMF would be irrelevant.

The Fund’s other rationale, of course, has over time become the conversion of the world to The American Way. This isn’t a Leftist on-message America Is Evil observation: the role is freely acknowledged at all levels of US business. IN 2005 the Think Tank Foreign Policy in Focus observed in its introduction to an essay on the IMF that

‘ Because the U.S. government is generally accepted as the principal influence on IMF policies, much of the reinvigorated debate over the institution’s role has been centered in Washington and in recommendations aimed at the Treasury Department and Congress.’


This doesn’t per se make the IMF a running-dog hyena of the capitalist criminal class or anything, but in March 2000 the unlamented US Treasury Secretary at the time, Larry Summers, was rather more pointed about its usefulness, saying nobody should

“ undermine the capacity of the IMF…and thus weaken this international financial institution’s capacity to promote central U.S. interests.”

Here this is a serious mismatch, however, between a Conservative Treasury Secretary and many of the IMF’s own staff. According to the Fund’s Independent Evaluation Office (IEO) report of January this year,

‘ staff on the whole felt they worked much better with 3rd world countries than advanced economies…[in the latter] a desire to avoid displeasing local authorities is a fact of life for IMF staff’.

I think that says it all, really: some great people working there who’ve had their focus and power to do good first perverted, and then starved, by western globalised business.

But the bottom line is, don’t look to the IMF to sort out a real crisis.