IMF Has No Crisis to Manage

Less than a decade ago, economists at the International Monetary Fund were jetting into the capitals of countries stricken by financial crises, patching together rescue plans aimed at staving off global economic chaos.

That, after all, was the IMF's chief mission: preserving financial stability. So as currencies plunged, foreign investors fled and defaults loomed in South Korea, Russia, Brazil, Argentina, Turkey and elsewhere, the fund responded with zeal. In tense negotiations, the IMF offered billions of dollars in emergency loans if the governments would make drastic changes in their economic policies.

This weekend, as top economic policymakers gather in Singapore for the annual meetings of the IMF and World Bank, the global environment is dramatically different. The fund's era of crisis-fighting, which lasted until 2002, is a fading memory that staffers swap stories about like war veterans.

Financial markets are buoyant. There's nary a crumbling currency in sight. And middle-income countries in Asia, Eastern Europe and Latin America have accumulated stockpiles of dollars that in some cases exceed the IMF's $227 billion.

The hope of some of the policymakers gathering in Singapore, including those from the Bush administration, is that the IMF will start playing an active role in helping to combat another threat to the world economy -- huge imbalances in trade, specifically the $700-billion-plus U.S. trade deficit and the corresponding surpluses in Asia and oil-producing countries. The fund's experts are also trying to improve their ability to figure out how future crises may arise and encourage countries to take preventive measures.

Doubts abound about whether the IMF can exert much influence over countries that don't need its money; the fund's eat-your-peas advice has often gone unheeded in such cases. And extolling the virtues of pea-eating, important as it may be, leaves some on the fund's staff of 2,700 with a sense of ennui.

"Firefighters don't like to sit in the firehouse," said Mohsin S. Khan, director of the IMF's Middle East and Central Asia department. "If you're in this organization and you've been caught up in the excitement of rushing around to countries helping them fight crises -- well, if there are no crises, you're sitting around wondering what to do."

In his department, Khan said, wars and high oil prices have created some fascinating challenges. "People are interested in working on Lebanon, Iraq, the West Bank-Gaza -- those are the Brazils and Argentinas of today," he said. But for many others on the staff, "it's the old story about Napoleon. Remember, he said it's tough for an army to sit on its bayonets."

The disappearance of crises is obviously welcome news, Khan and others hastened to add. But in a possible sign of malaise, resignations of IMF economists in 2005 increased about 45 percent over the average of the previous three years. Departures this year are running ahead of last year's pace. IMF spokesmen stressed that turnover is still relatively low, and reasons for quitting may include frustration with the lack of promotion opportunities at an institution that almost never fires senior employees. But several of the recent departees confided that they found their jobs less interesting than before, according to one senior IMF official who spoke to them.

None of this means that the IMF staff is idle. One group of economists trying to anticipate where the next crisis might arise describes its work as highly stimulating; future crises, the economists think, will almost surely be different from the turmoil of the late 1990s and stem from some murky area, probably new and exotic financial instruments for which little data are available.

"This is a moment of investment, when we are trying to strengthen the fire-prevention department," said Carlo Cottarelli, deputy director of the Policy Development and Review Department. "Firefighting is one function, but the main goal of the fund is fire prevention.

"In terms of work intensity, my wife is complaining more than when I was mission chief for Turkey. . . . It's clear, the level of adrenaline is different from a crisis. Thank God. In a crisis, the level of adrenaline can get too high."

If there is one area in which the IMF may soon return to center stage, it is "multilateral surveillance" -- the term the experts use for the fund's role in addressing global imbalances. Echoing many other economic experts, IMF Managing Director Rodrigo de Rato has been warning for some time that as foreigners accumulate vast amounts of dollars from U.S. spending on imports, the risk increases of a sudden, wide sell-off of U.S. currency that could throw the world financial system into damaging disorder.

The tricky question is how the IMF -- with its limited leverage -- can help steer the big players toward steps that are politically painful but are widely viewed as necessary to reduce the imbalances, without triggering a recession. Those measures include a shift in the U.S. economy toward more saving instead of continuing the consumption binge of recent years, and a rise in the exchange rates of Asian countries, especially China, that have become too dependent on exports based on cheap currencies. They also include changes in European regulations that restrain growth, and more spending by Middle Eastern nations of their petrodollars on foreign goods and services.

"It's not that the IMF needs to stand astride all of us wielding a stick," said Timothy D. Adams, U.S. undersecretary of the treasury for international affairs, who has been particularly aggressive in spurring the fund to get involved. "What they need to do is facilitate a conversation and provide general expertise."

Many of the countries with surpluses, Adams said, "will feel more comfortable meeting under the heading of an IMF-sponsored endeavor," responding to the recommendations of international technocrats rather than the hectoring of the U.S. government.

Adams also wants the IMF to tighten its rules on the types of currency systems that member nations can have. That is obviously aimed in large part at the relatively fixed exchange rate of China's yuan, which critics say gives Chinese manufacturers an unfair pricing advantage. In a quid pro quo of sorts, Washington is strongly backing a plan in Singapore to adjust voting power among the IMF's 184 member countries so that fast-growing nations -- including China -- can gain representation on the fund's board that is more commensurate with their economic size.

All that will take time, Adams said, "but this institution is too critical to let it become stale."