The IMF was on the verge of irrelevance just a few months ago, running out of resources as well as raison d'etre, and downsizing. Now its resources have been tripled and it has been given key responsibilities in halting the slide of the world economy into depression.
My newest Project Syndicate column argues that there is much to like in the "new" IMF under Dominique Strauss-Kahn's leadership. But the IMF will need organizational changes (in addition to developing countries getting greater voting power) if it is to become an institution that we can all love:
The greatest risk is that [the IMF] will once again over-reach and over-play its hand. That is what happened in the second half of the 1990’s, as the IMF began to preach capital-account liberalization, applied over-stringent fiscal remedies during the Asian financial crisis, and single-handedly tried to reshape Asian economies. The institution has since acknowledged its errors in all these areas. But it remains to be seen if the lessons have been fully internalized, and whether we will have a kinder, gentler IMF in lieu of a rigid, doctrinaire one.
One encouraging fact is that developing countries will almost certainly get a larger say in how the Fund is run. This will ensure that poorer nations’ views receive a more sympathetic hearing in the future.
But simply giving developing nations greater voting power will make little difference if the IMF’s organizational culture is not changed as well. The Fund is staffed by a large number of smart economists, who lack much connection to (and appreciation for) the institutional realities of the countries on which they work. Their professional expertise is validated by the quality of their advanced degrees, rather than by their achievements in practical policymaking. This breeds arrogance and a sense of smug superiority over their counterparts – policymakers who must balance multiple, complicated agendas.
Countering this will require proactive efforts by the IMF’s top leadership in recruitment, staffing, and promotion. One option would be to increase substantially the number of mid-career recruits with actual practical experience in developing countries. This would make the IMF staff more cognizant of the value of local knowledge relative to theoretical expertise.
Another strategy would be to relocate some of the staff, including those in functional departments, to “regional offices” in the field. This move would likely face considerable resistance from staff who have gotten used to the perks of Washington, DC. But there is no better way to appreciate the role of context than to live in it. The World Bank, which engaged in a similar decentralization a while back, has become better at serving its clients as a result (without facing difficulties in recruiting top talent).
This is an important moment for the IMF. The international community is putting great store in the Fund’s judgment and performance. The Fund will require internal reforms to earn that trust fully.
Read the whole thing here.