Money Is Power An Inside View of the IMF's Massive Global Influence
Part 2: From Capitalist Mean Machine to Think Tank
It has become increasingly clear in recent years that multilateralism doesn't work. It's a failure because the UN has a bland secretary-general and is always showing up in the wrong place and at the wrong time; and because not even climate conferences can achieve the desired objectives, even though only the most pig-headed still have doubts about climate change.
For a long time, the IMF seemed the least capable of doing everything differently and more effectively. It had been damaged since the Asian crisis in the 1990s. Some 400 were let go, and they were paid one month's salary in compensation for each year of service. By the time Brazil had repaid the last of its loans, only very small borrowing countries remained. The fund had become irrelevant.
DSK came to Washington in 2007, after having been nominated by French President Nicolas Sarkozy. The two men had been rivals, but now France was strengthened and Strauss-Kahn disposed of -- a diabolical plan on Sarkozy's part, as it seemed.
In 2007, the IMF had only $2 billion in lending commitments on its books -- an amount best described by the word "peanuts." Today that number has jumped to $195 billion. At the 2008 annual meeting of the World Economic Forum in Davos, Strauss-Kahn called for a global stimulus plan. It was a shocking idea, given the IMF's history of reacting after a crisis and never taking preventive action. Now the IMF had about $900 billion at its disposal -- up from $250 billion before the crisis -- enabling it to intervene quickly anywhere in the world.
The central question could be whether the IMF has what it takes to serve as a global economic government. There are some indications that it does. They include the collective experience of 122 banking crises Strauss-Kahn has counted since the establishment of the Fund, as well as the fact that there is no other institution that understands the sometimes productive and often destructive interactions between real economies and their tax laws, on the one hand, and modern Wall Street, with its investment banking, on the other, as well as the IMF and its staff of technocrats do.
Writing the Rules
The organization has changed. "We have learned that in order to be really effective, we need the people of the country we're engaged with to understand what we are doing," says Strauss-Kahn. The IMF, once a capitalist mean machine, has turned into a think tank that employs what Fund staffers call "soft power."
Is this enough? The IMF has hardly any sanction powers. And what happens after the crisis? Should the IMF simply receive more authority? How would it be legitimized? The United States, which wrote the rules in 1944 and had the representatives of other countries sign their names to a document some didn't even understand, has veto power on key decisions. Will poor countries fall by the wayside if the IMF coordinates global financial policy in a way that suits the G-20?
SPIEGEL's journey of discovery into the world of the IMF lasted 10 weeks. It began in Washington, and then led to Hungary, Greece, Oslo, Brussels, Boston, New York City and back to Washington, where the Fund is headquartered, on the corner of H Street and Pennsylvania Avenue.
In the beginning, the IMF didn't even bother to refuse interview requests. The organization doesn't simply open itself up to visitors; it has been criticized too much in the past. Then, Strauss-Kahn decided to open the doors, and from that point on there were no more barriers or taboos. The only rule was that most interviews were to be conducted off the record, and quotes had to be submitted for authorization. The IMF isn't cowardly: During the course of the 10 weeks of research, only one quote was retracted by an interview partner.
Members of an Exclusive Club
The IMF headquarters building is a labyrinthine world of fluorescent light, potted plants and identical floor lamps, a world of numbers focused on computers, and that generates relatively little paper. Each department decides how its members should dress. The German office requires suits, while a shirt with no tie is sufficient in the team of adviser Olivier Blanchard. IMF employees get to work early, at about 7 a.m., and go home late, and they keep their BlackBerrys next to their beds, with the sound muted. The IMF never rests. "We will feel the effects of the last crisis until the next one begins," says Strauss-Kahn.
IMF salaries range from $40,000 (for entry-level employees) to $400,000 (for Strauss-Kahn). Non-US citizens pay no income taxes, which makes the IMF an attractive employer. Few people leave their IMF jobs. They feel like members of a club that divides itself up into smaller sub-units during the few hours of leisure time, clubs of soccer players, photographers and cooks. When IMF people are asked why they are still there, after all the failed missions and all the malice that has been directed at them, they say: "Because we have real impact."
John Lipsky, an American citizen, is the second-most powerful man at the fund, the first deputy managing director. He says that one can "think the unthinkable here. This is an organization where real pioneers were at work. As long ago as 1944. In the seventies. And again today. What we have to do at the moment is without parallel." It is considered an achievement by DSK's team that the Frenchman defines the fund as being "subtly independent" and doesn't see the American with the twirled moustache as a minder sent by the US central bank, the Fed, but as an equal-ranking, or at least almost equal-ranking, thinker.
Entire Nations at Stake
Crises can be addictive. Roger Nord, senior adviser for Africa, came to the Fund in 1983. He spent time in Hungary, the former Czechoslovakia and Nepal, was there during the Asian financial crisis, and now wants to save Africa at a time when the Fund is chiefly concerned about Europe and the United States. Poul Thomsen, a blonde native of Copenhagen, started working for the IMF in 1982, on the day Mexico went bankrupt. In 1987 Thomsen went to Eastern Europe, where he witnessed the borders coming down. He later rescued Iceland, before he was sent to Greece to reeducate an entire nation to live a life without corruption and tax evasion.
These are the kinds of dimensions that the IMF works with. Entire nations, continents, millions of people and billions of dollars are at stake. In the end, all it takes to change the world is a few strokes of a pen or adjustments to the limited number of instruments that economists recognize: monetary and interest rate policy, the tax system and employment, government borrowing and foreign trade, national products and price trends.
No one knows how all of these things are interconnected. There are scientific certainties, but not many, and then there are probabilities, assumptions, opinions and trends. The IMF has to turn these concepts into programs, commit itself to figures and percentages, and to instructions to governments. In doing so, it resembles a circus artist juggling balls and frying pans and chairs and teacups, all at the same time. If everything remains suspended in the air, the outcome is a perfect state. If pans or teacups crash to the floor, the result can be civil war -- or at least a need to rethink strategies.
- Part 1: An Inside View of the IMF's Massive Global Influence
- Part 2: From Capitalist Mean Machine to Think Tank
- Part 3: Instant Flows of Cash
- Part 4: Shedding Its Image as the Headquarters of Hardcore Neoliberalism
- Part 5: Dropping 250 Billion over Europe
- Part 6: 'The End of Begging'
- Part 7: 'A Greek Bankruptcy Is Unavoidable'
- Part 8: Europe's Euro Challenge
- Part 9: 'Europe Must Reform Itself, That's Clear'