IMF: When Institutions Outlive Their Times

The freer flow of private capital across international borders has rendered redundant the large IMF lending programs that characterized the Asian, Latin American, and Russian currency crises of the late 1990s. Indeed, almost all of the IMF's erstwhile large borrowers—Argentina, Brazil, Indonesia, and Russia—have fully prepaid their IMF obligations, while at the same time building an arsenal of international reserves that will enable them to weather well any future crisis without having to request large-scale IMF assistance. As a result, the IMF's outstanding loan book, which exceeded US $100 billion, as recently as end-2003 is now down to a mere US$15 billion...The ready flow of private international capital has also rendered redundant a large part of the World Bank's lending activities. The World Bank's large middle-income emerging market member countries like Brazil, China, India, Russia, South Africa, and Turkey can all now more than meet their external financing requirements by accessing the global capital market. Yet World Bank lending to these countries still accounts for over one third of the World Bank's overall lending operations....The World Has Changed, Why Won't The Fund and the Bank?, Desmond Lachman, TCSDaily.com, 7/13/2007

Free flow of capital across borders is the key concept. When market determines how money will flow, toward or away from lenders, the moralizing of bureaucrats in Brussels or Washington, DC, are not very interesting to listen to. They are also useless as a guide for investment. Like all governmental, or inter-governmental, agencies, the IMF is a system which lacks the self-awareness of when it needs to either a) change, or b) retire. The latter, which is probably the best idea, is not mentioned in Lachman's article.

Institutional markets are not the only story in this change. Probably the most significant change, from a popular point of view, is the dramatic growth in micro-lending. As mentioned before in a story on this blog, repayment of micro-loans is far better than it is on institutional ones. One need only look at the subprime mortgage market for a contrasting example to the tens of thousands of small loans sent out to India, Africa, Mexico, and a hundred other places. The latter get paid back. The latter transform lives one small step at a time. Maybe it's time to make the IMF offices a vignette in the Smithsonian.

Luther