IMF World Bank 2006
So long a lender, the IMF is preparing to change tack and embark on a new role – that of surveillance monitor and adviser. The IMF has lost a lot of relevance for investors because it has become an outsider.
For those Fund clients with the longest memories, and especially those in Asia, the transformation the agency is now forcing on itself smacks somewhat of the school bully suddenly hoping for a role as milk monitor.
Looking to its traditional heartland of Latin America offers the Fund no further solace, with traditionally big borrowers Brazil and Argentina showing an unexpected zeal in their desire to pay back their debts as soon as they possibly could.
The recurrence of strong numbers has given Argentines a new self-confidence – one boosted by the fact that they no longer have to answer to outside arbiters of their economic health. The sovereign paid down its US$9.8bn debt to the International Monetary Fund in January thus ending a rocky relationship with an institution that some say is already a relic of the past.
While it was in charge of the purse strings, making policy was a relatively straightforward process for the IMF. After years of conditionality – a feather in the Fund's bow that was in fact a blot on the landscape - the options are now open. The Fund's new strategy prioritises surveillance, crisis prevention and response in EM; engagement with low-income countries; governance; and streamlining its processes.
Option number one seems to be surveillance. Extra value comes from the Fund's research capabilities. In relation to surveillance, the Fund needs to upgrade its research, using its privileged position to gather more data.
A final, although dormant role comes as the lender of last resort. But here, the fund is looking to define its role in an age when liquidity is pouring into the emerging markets as freely as the oil that is making so many of these countries rich. Other EM countries without oil are relying on other commodities, a global reduction in inflation or just the plain benefits of cheap refinancing to strengthen their finances, while they can.
But it all means that there is little reliance on what the Fund has to offer as a banker. Without lending money, the IMF is left with a lot of bills to pay at the same time as it has a diminishing income. No interest on its loans means less money to spend on the new initiatives that it may be drawn to.
The IMF annual meeting in Singapore should at least firm up the tenets that the IMF is now hoping to live by, with managing director Rodrigo de Rato expected to unveil a two-year action programme covering all areas of the Fund's activities.
The meeting should also offer an opportunity for Iraq to nudge its financial restructuring that bit closer to completion. With the Paris Club and commercial creditor portions of the workout all but closed, advisers to the restructuring of debt owed to non-Paris Club sovereigns are hoping to announce resolutions with around half of the 15 or so countries that have yet to sign on the dotted line.