Money Is Power An Inside View of the IMF's Massive Global Influence
Part 3: Instant Flows of Cash
Some 2,400 people work for the Fund, most of them in Washington, but there are also small offices around the world, with three or four people working in each country. If Iceland becomes insolvent, it can apply for a loan, for hard currency and for a subsidized interest rate that can be as low as 5 percent. Things have to happen quickly, too. The field team, as it's called, submits reports, a team in Washington writes a rescue plan, and Iceland approves it. The IMF's Board of Governors confers on the issue and decides whether the plan will work. With the press of a button, $168 million is sent to Reykjavik, arriving there seconds later. This is what distinguishes IMF decisions from many multilateral decisions: the immediate flow of cash.
Then a team from Washington follows the money to Reykjavik, where it advises and keeps a close eye on the Icelanders. This goes on for months, because the new emergency program, known as the "Flexible Credit Line" -- money provided with no strings attached -- increases the risk for the Fund. Will this money ever be repaid?
'I Had to Look Up Terms on Wikipedia'
Olivier Blanchard is considered to be the brain of the organization. A slim, soft-spoken man, he is sitting in his office, room number 10-700 H, with the top two buttons of his shirt undone. Blanchard is a macroeconomist and one of DSK's top advisers. A Frenchman like Strauss-Kahn, Blanchard is not a politician but a product of the University of Cambridge. He has two positions at the Fund: economic adviser and director of the research department.
He talks about how, at the beginning of the economic crisis, they sat in their offices, speechless with amazement, and tried to understand what tricks Lehman Brothers and others had employed to bring about their own demise. "It was a fulltime job. In the beginning I had to look up terms like 'CDO squared' on Wikipedia," he says with a chuckle.
Then the crisis escalated, and it gradually became clear that Africa, Iceland and many others needed help. "That's when we became part of the game," says Blanchard, "and what I may have been able to add was a widening of understanding of what was happening: This is not a standard recession. These are very complicated developments that are asking for complex solutions, and broad thinking."
Blanchard is an astute academic who admires Strauss-Kahn for qualities he probably prefers not to find in himself: "The Machiavellian side. Without the darkness. He is Machiavelli without the shadow, do you know what I mean?"
How the Americans Got Their Own Way
If anyone ought to know what has truly changed at the Fund, it is James Boughton. An elderly man, he sits in his office, surrounded by his books, off a deserted hallway lined with empty offices on the fifth floor.
Boughton talks about 1944 and the establishment of the World Bank and the IMF in Bretton Woods, New Hampshire, when the images of the war were still omnipresent. The idea was that free trade would prevent new wars from breaking out, and the Fund was intended to "facilitate the expansion and balanced growth of international trade," as the IMF's articles of agreement put it.
But there was more to it, of course. The British wanted the organization to be headquartered in New York, but the Americans, who preferred to keep it closer to their seat of government, got their way. The Fed, the major Wall Street banks and the White House treated the Fund as a tool of American policy. During the Cold War, IMF loans were contingent on compliance with Washington's political agenda. For decades, neoliberal economic theory was the only true theory, and it preached raising taxes, reducing subsidies and liberalizing markets.
Dominique Strauss-Kahn is publicly portrayed as the man who transformed the Fund. But inside the Fund they say that it was Reza Moghadam, who experienced the street rioting during the Asian crisis, who truly transformed the organization.
Boughton says that neither assessment is correct, and that the process of transformation began under Horst Köhler, the former German director who would later become the country's president. "Horst Köhler asked for a more cooperative way of approaching officials in borrowing countries. The shift to more narrowly focused and less intrusive conditions for credits began under Köhler," says Boughton.
- 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'