Here is Ken Rogoff on the IMF, via Asymmetrical Information.
Many critics argue that Bretton Woods has gone away and the world has no current financial crises. What is the IMF to do? Plus the IMF’s management of crises can be counterproductive and create moral hazard.
The primary question is what kind of recurring but temporarily patched together multilateral crisis management arrangements would replace the IMF. The IMF would seem to be an especially good deal for the United States. Despite being the world’s largest debtor nation, in the absence of an IMF, we would be looked upon as a global lender of last resort.
The presence of an IMF allows us to trade with other nations, and sometimes bully them around. But when their financial claims come we can calmly tell them to go take a place in line; furthermore other countries will help pick up the tab or help make "conditionality" look less imperialistic. Given that the US has a role as global policeman in any case, the IMF shifts the "terms of trade" of that role in our favor. Do note that many IMF critics would prefer to revise this entire arrangement, but simply abolishing the IMF, taken alone, would not bring large gains even under a libertarian view of the world.
A question: given that much of the funds are raised on
private capital markets, how much does the IMF cost (in the crude sense
of the gross subsidy) each year?
By the way, I’ll go out on a limb and predict the next financial crisis will come in an Eastern European nation which wanted to join the Eurozone but couldn’t quite make it. Once this failure is realized capital will flow out rapidly.
On the IMF, here is commentary from The Economist.
Addendum: Here is an IMF piece on Robert Mundell, via Greg Mankiw.
The World Bank is a major issuer in the capital markets, but I’ve never seen an IMF bond.
Retain the IMF, but move it into the Pentagon. The IMF is an important
weapon in our national defense. If we are unhappy with a foreign country,
we can send in the military. If we are really unhappy, we can send in the
IMF.
Well, the big joke is that the next really
big foreign exchange crisis might involve
the US (see brad setser on the deteriorating
US investment income balance, not to mention
the exploding mountain of credit derivatives
spooking NY Fed Pres Geithner). Not clear
the IMF will be able to do much about that
one, if it happens…
The IMF should be reformed to be putting actual money down in insurance style investments of currencies over at least a year or longer.
I, too, am interested in how much it actually costs. I think the benefits to the US and the world have been bigger than the costs; although at a significant moral hazard cost.
If a reformed currency stabilization insurance type market alternative was formed first, then yes, dump IMF. ‘IMF crowds out the better alternative’ — if it’s really better, it should be better in a small scale even with the IMF.
I don’t think buying currencies based on the Big Mac PPP differences has been especially profitable — though I could well be wrong about this.
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