Spring time at the IMF, and Greece

This weekend is the Spring Meetings for the IMF and the World Bank (just “Springs” to the insiders, to match “Annuals”, the October Annual Meetings of the Governors of the Fund and the Bank.  The Spring Meetings are always held in Washington, the location (for the time being) of the headquarters of the two Bretton Woods institutions, whereas every three years the Annual Meetings venture abroad at great expense (and presumably perceived prestige) to the host city, and great expense and inconvenience to the institutions themselves.   For anyone who wants a flavour of the Annual Meetings, Liaquat Ahamed (author of Lords of Finance) captured them rather well in a chapter in his recent book-length portraits of the IMF, Money and Tough Love.  My memories of the Dubai Annual Meetings included potential protestors being allocated a bare paddock where no one could see or hear them, and security forces who reproved me sternly for daring to get some fresh air by walking between the convention centre and the (next door) hotel.

The main formal events at the Spring Meetings are the meetings of the International Monetary and Financial Committee (IMFC), which the IMF website describes as follows:

The IMFC advises and reports to the IMF Board of Governors on the supervision and management of the international monetary and financial system, including on responses to unfolding events that may disrupt the system.

and its development-focused counterpart, the Development Committee.

Membership of these committees largely mirrors the respective Executive Boards that govern the IMF and World Bank on a day-to-day basis.  New Zealand is part of a multi-country constituency, and is “represented” by either the Australian Treasurer or the Korean Minister of Finance.   Representation is a bit notional, both because whichever Minister is in the chair is mainly concerned about his or her own domestic political interests, and New Zealand’s leverage is typically very small.  And these are ritualised, largely formulaic, meetings anyway.  Communiques emerge from them, which – while hard fought at times – rarely have anything of substance to them.  Real decisions are made in other fora –  e.g. G7 Finance Ministers meetings, and in bilateral negotiations among key countries.

So why do people bother with Springs?  A bit like the Annual Meetings, the formal meetings are much less important than the informal ones –  the networking opportunities (especially at the Annuals), the meetings of smaller groups of similar countries, and the opportunities for one-on-one meetings with other countries’ ministers or senior officials, or with IMF/World Bank senior staff themselves.  Constituency countries get together, often over a drink. Personal contacts and relationships matter.  New Zealand has been rather spasmodic in its attendance at Spring Meetings, (although the Minister of Finance usually attends Annuals) –  in my two years as an alternate Executive Director on the IMF Board, New Zealand sent an Acting Deputy Secretary of the Treasury one year, and no one the other year.  That seemed a wise use of resources, although when John Whitehead held the Executive Director role on the World Bank – probably the last time New Zealand will ever hold the top position – attendance was stepped up considerably.

No doubt over the weekend there will be lots of discussion of the faltering world economy.  I suspect Greece will get a lot of mention in the corridors, but rather less at the top table.  The overdue Greek exit from the euro is looking increasingly certain – I’m even beginning to think I might win a modest wager entered into 3 years ago with someone rather closer to the process, that at least one country will have left the euro by June 2015.

But I suspect what won’t be discussed –  at the top table, or in corridors –  is the failure of the IMF around Greece and the euro more generally.  Not that the IMF can be blamed for the choices the Greeks and other Europeans made to let Greece into the euro, let alone for the choices that the Greeks have made over the years.  But one of the key roles of the IMF is “surveillance” –  free and frank analysis and advice on the risks and pressure points in system, as they affect individual countries, and the world economy as a whole.  If there is a global public good to the IMF (and I’ve questioned that), it has to be in its willingness to ask hard questions, to push analysis where current politicians don’t want to pushed, to prod and probe even when no one else in much interested in doing so.  And in bringing to bear the perspectives of experience – past economic and financial history, and the ongoing experiences of its large membership.

But the IMF was for too long largely supine around the euro, and about what has become its key pressure point/vulnerability.  The institution was both uniquely well-placed, and uniquely compromised, when it came to dealing with Europe.  Managing Directors of the Fund have always been from European countries – most recently, former politicians from those countries.  Compared to the emerging and developing countries the Fund often had to deal with, the data in European countries are pretty good, and many of the Fund’s own staff are European – and others have trained in European universities.  And yet the Fund said almost nothing seriously critical of the great euro experiment.  Oh, don’t get me wrong, they devoted acres of text to technocratic issues around the fiscal provisions of Maastricht.  But so strong did the institutional belief appear to be in the end being pursued that serious questioning and stress-testing was discouraged and silence was the order of the decade.   I’m not aware of anything that the Fund produced in the decade prior to the crisis that pointed to the sorts of stresses the system has experienced, stresses that have had catastrophic consequences already for ordinary Europeans, and the potential to get worse.  No doubt euro-area ministers of finance didn’t want the IMF – in which they had a pretty dominant place (both voting shares, and seats on the Executive Board) – asking awkward questions.  Managing Directors came from that same environment, and often wanted to get back to it.  In the short-term no one had an interest in asking the hard questions, and so no one did.  I’m sure some of the very able staff were uneasy and may have profound insights to offer, but they had careers to pursue, and the more able ones on systemic risk probably didn’t relish the prospect of an assignment as Resident Representative in Monrovia (or some less stark shuffle sideways at HQ).

And so the question needs to be asked, what value did the IMF add in the process?  Come 2010, the IMF then put itself at the disposal of European governments, who wanted to kick the crisis down the track (“a crisis might still happen tomorrow, but at least we avoid the certainty of one today”), compromising and relaxing yet again its own rules, to put more money into a country where the prospects of success, on the strategy adopted, were always modest.  Of course, one can’t just blame the Europeans.  The US was as keen as anyone to avoid immediate stresses, and even countries and constituencies like our own were unwilling to go out on a limb and openly question what was being done with our citizens’ money, and whether the emperor had any clothes at all.

I don’t lay claim to having been overly prescient about how the European situation would play out.  I was always a bit of a sceptic, as many Anglos were.  But while I sat on the Fund Board – with, to be honest, not that much to do –  I did take the chance to ask a few questions, and make a few observations, at the Board, about both Greece, and the euro-area itself.  I discovered recently that all these statements are available on the IMF’s archives website.  I think what disconcerted me most at the time (around 2003) was the way the euro was presented as something akin to the end of history, rather than being a new and rather bold experiment – a large scale currency union among advanced democracies, with no fiscal union or political union.   Bold experiments inevitably involve risks and stress points.   Staff, no doubt acting in their own perceived interests and as they often did, mostly ignored my questions.  European directors loudly harrumphed and suggested that it was simply wrong and inappropriate to raise such questions.

To his credit, one (a hugely impressive former academic) came to me afterwards and observed something along the lines of “well, of course you are quite right, but we can’t be seen to be saying that.”    Today he is Finance Minister of a struggling euro-area economy.  I’d wager that there won’t be a euro-area for his country to be a member of five years from now.

The IMF, its Board, its Governors, and the IMFC, are likely to pass over the failures around the euro in silence.  Perhaps in time the Fund’s Independent Evaluation Office will produce a good report on the subject, but when so many entrenched interests have so much at stake it is difficult to be optimistic even on that score.