The IMF has lost its way
A bombshell investigation revealed last month how Kristalina Georgieva, formerly CEO of the World Bank, pressured her staff to manipulate data after Chinese officials complained their economy hadn’t ranked highly enough in the Bank’s Doing Business Report. Now at the head of the International Monetary Fund, Georgieva won’t be able to credibly lead the Fund if these findings are substantiated. What’s more, her problems have only added to preexisting signs of trouble: not content with serving as a lender of last resort, the IMF under Georgieva has reimagined itself as the answer to global challenges ranging from COVID-19 response to climate change. Mission creep has become the mission itself.
A case in point has been the IMF’s eagerness to help countries fight the pandemic. This summer the Fund approved a $650 billion disbursement of its Special Drawing Rights so that developing economies could obtain hard currency and import medical supplies. This move contradicted the IMF’s rules, which prescribe how SDRs are meant to address a long-term need in world reserves, not hand governments unconditional aid to boost emergency spending.
In any event, the IMF’s plan won’t end up targeting the needy, with only 3 percent of SDRs being allocated to the poor. Other countries have already admitted their money may not be spent to tackle COVID-19 as intended: middle-income recipients like Argentina have said they might draw on their SDRs to pay off old IMF loans, while Mexico has floated the idea of using its windfall to shore up Pemex, the state-owned oil giant. One can only imagine what brutal dictators in Syria and Belarus will do with their SDRs, though stocking up on personal protective equipment for ordinary citizens seems unlikely.
The inanity doesn’t stop there. Before Georgieva’s data meddling was uncovered, she was also soliciting China’s help to start a new “Resilience and Sustainability Trust,” which claims to go even further than SDRs by supporting countries’ health care systems and steeling the world against climate change. At best this is the job of World Bank colleagues down the street from the IMF in Washington, but Georgieva couldn’t allow the Fund’s lack of experience in these areas interfere with visions of fundraising wins.
Spreading itself thinner is all the more senseless since the IMF still wrestles with weaning borrowers from its traditional forms of assistance. While the Fund likes to point to the “catalytic” role of its loans, implying they act as an adrenaline shot to move ailing economies past acute crises, in many cases they bear more resemblance to a morphine drip, with countries as far afield as Argentina, Pakistan, Armenia, and Honduras needing a Fund program on average every three years. IMF shareholders, the U.S. foremost among them, should focus on solving these cases before the Fund volunteers itself to overhaul hospital systems and mitigate rising sea levels.
Even if the IMF is successful recommitting itself to its core mission, the Fund will still have to navigate its future with China, its third-largest shareholder. As the investigation into Georgieva’s actions at the World Bank showed, trying to cater to China is liable to backfire at multilateral institutions. That’s not because China always demands malfeasance — indeed, the Bank’s investigators found the Chinese didn’t insist on a quid pro quo — but seeking to accommodate the world’s largest dictatorship can only corrupt these organizations’ integrity.
The Fund’s recent history proves this point. In a 2010 review of its shareholding, the IMF granted China the largest increase in voting power of any other country. Just five years later, the Fund agreed to add the renminbi to an elite basket of currencies determining the value of SDRs, despite the fact that the RMB was under the control of a non-independent central bank and lagged behind the Canadian and Australian currencies in international reserves. The IMF put the cart before the horse by thinking China would become a responsible power if it was first treated as such.
What actually happened after the IMF gave China a pass? The country went on to impose capital controls, raised the opacity of its overseas lending, cut off foreign investors from a growing number of its companies, and violated international norms through genocide in Xinjiang and a crackdown on Hong Kong’s freedoms. The Fund is now stuck having legitimized a regime that makes a mockery of multilateralism.
The controversy surrounding Georgieva is an opportunity for the IMF to step back and assess its direction. It should return to an agenda that prioritizes things the Fund is qualified to deliver, whether it’s temporary assistance to borrowing countries committed to economic reform, high-quality data collection and research, or rigorous monitoring of global growth and stability. That’s where the IMF’s advantages lie, if only it would embrace them.
Andy Barr is the lead Republican on the House Financial Services Subcommittee on National Security, International Development and Monetary Policy.