The International Monetary Fund’s new managing director, the Bulgarian Kristalina Georgieva, has learned how to play the game. The game is to never let a “crisis” go to waste. And in the IMF’s case, crises should be exploited in ways that ensure that the scope and scale of the IMF’s bloated and ineffective bureaucracy can be expanded further.
Established as part of the 1944 Bretton Woods agreement, the IMF was designed to be primarily responsible for extending short‐term, subsidized credits to countries experiencing balance‐of‐payments problems under the post‐war, international, pegged‐exchange‐rate system. In 1971, however, Richard Nixon, then U.S. president, closed the gold window, triggering the 1973 collapse of the Bretton Woods agreement and, logically, the demise of the IMF. It was then that the IMF should have been mothballed. But since the Bretton Woods collapse, the IMF has used every crisis as a chance to dream up a new mandate and expand.
The oil crises of the 1970s were the first to allow the IMF to reinvent itself. Those shocks were deemed to “require” more IMF lending to facilitate, yes, balance‐of‐payments adjustments. And more lending there was: From 1970 to 1975, IMF credits more than doubled in real, inflation‐adjusted terms.
With the election of Ronald Reagan in 1980, it seemed that the IMF’s crisis‐driven opportunism might be reined in. Yet with the onset of the Mexican debt crisis, more IMF lending was “required” to contain the crisis and prevent U.S. bank failures. That rationale was used by none other than President Reagan, who personally lobbied 400 out of 435 congressmen to obtain approval for a U.S. quota increase for the IMF. Once again, IMF lending ratcheted up, increasing 27 percent in real terms during Reagan’s first term in office.
Then came the collapse of the Soviet Union. What a “jobs for the boys” bonanza that was! And, the list goes on and on with every crisis providing yet another opportunity for the ineffective IMF to pump out more credit and advice.
Never one to miss an opportunity, Georgieva has made her move. Banks and the property rights of bank shareholders are her targets. The title of the IMF Managing Director’s Financial Times op‐ed of May 22nd says it all: “Banks Must Halt Dividends and Buybacks or Be Forced to Do So.”
Don’t the owners of bank stocks decide whether the banks they own will pay dividends or buy back their shares? And, if there are restrictions of bank shareholders’ property rights, aren’t they imposed by laws and regulations mandated by sovereigns? Well, that was then, not now. Today, things have become so politicized that even an international organization, like the IMF, has been able to grant itself a license to meddle in what used to be none of its business — namely, the rights of those who own bank stocks.
While the IMF’s protean attributes are truly breathtaking, its most recent meddling gives yet another reason to put an end to it.