Thessaloniki, Greece. Some years back, I wrote that the annual meeting of the International Monetary Fund in Washington was Davos on the Potomac. It is, but it is much more. Held two out of every three years in the IMF headquarters city, it is a much larger and more important gathering than the World Economic Forum.
Marco Annunziata of GE, formerly the chief economist at Italy’s biggest bank, calls the IMF meeting “an extraordinary concentration of policy makers and market participants…an opportunity to take the pulse of the global economy.”
Created in 1944 by the British/American partnership that led the western war effort, the IMF is in Washington because then President Roosevelt and his Treasury Department wanted to keep an eye on it. (They weren’t sure the wily Brits who wanted US money could be trusted)
As the Fund gathered strength in the 1960s making emergency loans to countries in distress, US dominance in the financial agency that has always been headed by a European became paramount.
It still is. Washington alone has a veto over all major decisions as votes are weighted in accordance with economic strength and the US accounts for over 16% of the total.
And so it was that this year’s meeting took place while the US government was shut and its treasury secretary distracted by calamity. Put in simplist terms, with finance ministers and central from virtually all the world’s major economies in town, the US government presented itself as unable to produce a budget, a task the IMF identifies as basic.
Embarrassment to describe the political gridlock is too mild. Shock was a more typical assessment from the high-powered visitors. Frustration with US dithering on global and domestic policy prompted editorialists at Xinhua in China to write that it is time for the global economy to be “de-Americanized.”
They also had in mind the disgusting refusal of the congress to even consider a replenishing of IMF resources that the Obama administration and over 180 IMF member countries agreed to in 2010. The lack of both congressional action and administration prodding is galling since it is essentially cost free to the US taxpayer.
Myopic politicians in both parties fail to comprehend the extent to which the IMF promotes US goals of free markets, financial rectitude, and a rules-based open world economy. That China and former “third world” countries are demanding more say in the IMF should be seen as a triumph of US policy.
Indeed, some US officials privately support increased votes for emerging market countries, something the Europeans–overweighted in the IMF– do not. Former Treasury official Tim Adams, who heads the Institute of International Finance, says “the old concept of the first world leading in the IMF is outdated.” A determination to get more say in the IMF is one reason that seemingly disparate Brazil, Russia, India, China and South Africa have banded together as BRICS, creating their own credit lines with plans to create a development bank.
The US remains the dominant world economy with its dollar the world’s reserve currency. That privileged status shouldn’t be taken for granted. With chronic trade and budget deficits, if the US were not respected, Washington could be like Greece coming cap in hand to the IMF for help. Far-fetched as that seems, it could someday happen. Aware that the US is still recovering from its deepest recession since the 1930s, most policy makers abroad want the US to succeed. They recognize that robust growth and prosperity in the US is in their own interest.
But they also want an end to gridlock and a plan to bring our financial accounts into balance. Without this, US leadership in the global economy will continue to erode. #