Money Is Power An Inside View of the IMF's Massive Global Influence
Part 5: Dropping 250 Billion over Europe
Klaus Stein, the IMF's German executive director, who occupies room 13-516 in the Washington headquarters, is the enforcer in a game that is becoming more and more fast-paced. A serious and cautious man, he sits a little stiffly in his chair, his white hair combed back and his glasses tucked into his jacket pocket.
Stein is a lawyer, not an economist. He worked in the budget division at the German Finance Ministry, where he ran former Finance Minister Hans Eichel's cabinet department. He has also worked at the UN in New York, but none of his assignments has been as exciting as his last three years at the IMF.
That included September 2008, when Lehman collapsed. And everything that followed.
Stein has a stellar reputation at the IMF, where those who work with him call him "reliable and straight as an arrow." But, like everyone else, Stein is maneuvering in a minefield, which in his case has four corners. One corner is the world in which he lives, where colleagues trust one another and, after a time, come to see themselves more as IMFers than as envoys of their respective countries. But there are three other corners that Stein has to address early in the morning, via e-mail and phone. German Chancellor Angela Merkel, with her changing views, wants influence; German Finance Minister Wolfgang Schäuble is sometimes a supporter of the IMF; and Axel Weber, the chairman of Germany's central bank, the Bundesbank, feels that what Strauss-Kahn is doing goes much too far.
Shifting the Foundations
Stein doesn't mention any of this. Instead, he says: "It hasn't been easy for Germany in the last few months. Germany wanted to be fiscally conservative." What has shifted is nothing less than the Fund's very foundations. In the past, the IMF intervened when countries were heavily indebted and became insolvent as a result of the devaluation of their currency. In the end, the IMF's actions were based on the idea that national crises had to do with liquidity shortfalls, to be resolved with cash and austerity measures. Credit was extended in return for conditions, and those conditions were stringent.
In the case of Greece, this past policy prompted the Germans to argue in Washington that the country wasn't facing a foreign exchange crisis, but a homemade budget problem coupled with corruption. Besides, the Germans pointed out, the IMF should not intervene because Greece, as part of the euro zone, was part of the EU's balance of payments.
This was all true. Nevertheless, Stein says Strauss-Kahn didn't want to "wait for the victims to go over the cliff before we were allowed to catch them." And in the end Merkel, and eventually the Bundesbank, did support the bailout package. The Greek crisis also introduced a new element: the concept of the "joint venture," or cooperation with other institutions, most notably the EU. The IMF dropped 250 billion over Europe, most of it coming from Asian contributions. The former Third World was coming to the aid of the old First World. It was undoubtedly a sign of a new world order.
Only the hierarchies and structures within the Fund have remained in place, for the most part, which is more pleasing to the Europeans than to anyone else. The executive board of the IMF meets on the 13th floor, at 10 a.m. on Mondays, Wednesdays and Fridays. Suits and ties are required when the 24 members of the board meet around an oval conference table, with a second row of assistants sitting behind them. At the meetings, which are conducted in English, the board discusses the IMF's projects, country by country and mission by mission. The Europeans coordinate their opinions in advance, and to save time each member distributes his or her statement to the others before the meetings. At the end, the group waits for Klaus Stein's statement, and Stein calls for "responsible action."
The executive board consists of 24 directors. Most are elected and represent groups. The Brazilian director speaks and votes on behalf of Colombia, the Dominican Republic, Ecuador, Guyana, Haiti, Panama, Suriname, Trinidad and Tobago and, of course, Brazil. Together, the group holds 2.41 percent of all votes.
Nine of the 24 directors are still Europeans, and five of the 24 are permanent representatives, appointed by their governments and not elected by anyone. The US director holds 16.74 percent of all votes, the Japanese director holds 6.01 percent, Stein holds 5.87 percent, and the French and British directors each hold 4.85 percent.
They constitute the top tier, with no potential for any of them to leave the board or be replaced by new members. Is it fair? IMF employees give a friendly smile when they are asked about fairness. Then they glance at their BlackBerrys.
An Open-Door Policy
The managing director, who chairs the executive board meetings, comes from Europe, and his first deputy director is from the United States. This is the arrangement that applied in 1950, and it continues to apply in 2010. There are 30 so-called senior officials at the IMF, and they are the organization's key decision-makers. Strauss-Kahn's inner circle includes his adviser Blanchard, Reza Moghadam, a British citizen of Iranian descent who is head of the strategy department and who was voted the most handsome man at the Fund by the IMF's female employees, the Chinese special advisor Min Zhu and Caroline Atkinson, director of the Fund's external relations department and its chief spokesperson. There is an open-door policy on the 13th floor, and DSK has an ad hoc management style. In the morning, members of his inner circle eat croissants together and discuss the state of the world.
Every other Thursday, the elegant Caroline Atkinson steps in front of a blue wall in a small, cool room on the ground floor to tell the world how it is being saved. Atkinson's press conference is a trip around the world in 15 minutes, in which she employs the official language of the Fund to recount a tale of progress and inform the press about the program's "promising developments."
Moghadam's job is to make sure that everything remains structured and yet constantly in flux to suit the crisis of the day. Moghadam is a sort of secretary general for the Fund. He introduces internal and external reforms and proposes new groups and strategies. In 2008, the IMF's key decision-makers simulated the crisis before it even began, and spent an entire day examining the hypothetical rescue of an Eastern European country, including press releases. Moghadam says: "At the center was the rule of structure conditionality which we had until recently -- if you didn't meet a performance criterion the way that the Fund programs work, financing stopped automatically, and nothing could change that. We abolished that and provided what we call structural benchmarks, which is more of a goal the state sets for itself. It's not a showstopper."
But what happens if a country still doesn't stand up to the pressure of reforms, or if a government faces the prospect of losing its citizens? What happens if, after years of hardship, the social fabric begins to fray? This was the experience in Indonesia, Argentina and Hungary. The Hungarians know very well how the IMF influences the countries it is supposed to rescue.
- 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'