Funding change

For years, the IMF has served as the bogeyman of the international system, everyone’s chosen object of scorn. Hardly surprisingly, really: like vultures, the IMF would only ever turn up once you were already in trouble; like a tax audit, borrowing from them meant you had to open your books to their scrutiny, while they took a red pen to beloved programmes as the price of saving you; and, as often as not, their cure would be worse than the punishment in the short term, sending troubled economies further into crisis. This crisis has, instead, revealed a very different IMF.

Last week, the IMF announced a major new scheme — a $100 billion fund for loans to “well-run” countries. These won’t be normal loans — for one, they’ll have a three-month term, to tide otherwise sound economies over short-term liquidity or foreign-currency shortages. For another, they won’t require the full battery of “conditionalities” that traditionally accompanied IMF lending — the structural adjustment that ensured that it would get its money back, and caused its horrible public image. Last week, Iceland’s interest rates rose rapidly in response to old-style conditionalities, and the Ukraine was forced to pass new banking regulations. With this scheme in place, however, the IMF is essentially going to exempt certain countries, which are otherwise stable, from making such reform compulsorily. Further, applications can be made privately, as regimes worried it was a terrible signal about their economy. The actual sums being lent are higher, more realistic, as well.

How come things are changing? Part of it is that it’s clear the IMF has a mandate to intervene — summit after summit has reinforced that. There’s only one fear — that the Fund itself will run out of funds. Gordon Brown flagged this last week, and asked for help from China and the Gulf states, both sitting on vast reserves. Hopefully those countries will decide that the IMF’s a safe investment. Meanwhile, the rest of us should realise that the big, bad, IMF bogey is gone for ever. Hopefully that’s just the beginning of real, multilateral change.