Along With New Money, IMF Gets Politically Perilous Tasks

International Monetary Fund officials were nearly giddy in early April when they learned that leaders at the G-20 summit backed a fourfold increase in fund resources to $1 trillion. During a press briefing, IMF Managing Director Dominique Strauss-Kahn used the phrase "the IMF is back" six times.

But at the IMF's spring meeting this past weekend, reality set in. In exchange for the money, the IMF has been handed tough assignments in fighting the global recession and staving off another one. The work will require a political dexterity and willingness to stand up to powerful IMF members that the fund has rarely shown in the past.

"There's been a huge expansion of IMF resources and huge attention to the IMF, but nothing has been done to make members fear IMF surveillance" or oversight, says Adam Posen, deputy director of the Peterson Institute for International Economics, a Washington think tank.

The new facility has won plaudits from some developing countries, but the IMF will still have to make tough political calls. Only nations ranked highly by the IMF can qualify for credit line. The IMF often forces other borrowers to cut spending or raise interest rates even if that deepens a downturn, though the IMF has taken steps to protect some programs for the poor.

The disparate treatment has prompted complaints in Turkey, Pakistan, Eastern Europe and elsewhere that the IMF is playing favorites, and it may lead to pressure on the fund to ease its standards. The World Bank has tried to reduce the effect of the budget cuts by financing infrastructure projects that otherwise might be jettisoned.

Pressure on the IMF will ramp up when it must decide whether to renew the credit lines after their one-year terms. Saying "no" would undermine a country's economic standing; saying "yes," if the country's policies don't warrant it, would undermine IMF credibility.http://online.wsj.com/article/SB124078041608357051.html#mod=todays_us_page_one

About $500 billion of the new funds are earmarked for the IMF's main job of bailing out troubled countries. The IMF has introduced a credit line that doesn't require borrowers to make the kinds of painful economic changes -- cutting spending, slashing subsidies -- that have turned the IMF into political poison in much of Latin America and Asia. Mexico, Poland and Colombia have signed up for the credit line.