Why Does the IMF Have So Much Power, Anyway?


he tale of Dominique Strauss Kahn would seem too lusty for an international thriller: The managing director of the International Monetary Fund and a member of the pampered Parisian elite is plucked from the first class section of an Air France jetliner just as it is about the leave the U.S. by New York cops who charge him with sexually assaulting a West African maid at his $3,000-a-night Sofitel hotel suite in Midtown Manhattan.

Not even novelist Daniel Silva would go that far.

But the situation is real. Strauss Kahn is in jail and has resigned his post in the IMF.

That begs another question: just what is the IMF and what does it mean to us?

It is a question I asked myself when I was Moscow bureau chief for BusinessWeek in the mid 1990s. I had been in that post before, in the 1980s, during the heady Gorbachev years and after a four-year job editing stories in New York on the international desk, I went back. The Communist system had fallen with breathtaking speed. Our adversary since 1945 had simply vanished without one nuclear warhead being detonated in anger.

The historical upheaval was intriguing enough. But there was one more oddity. The most important foreign visitor to the Kremlin in those days was no longer the American president, in this case Bill Clinton. It was Michael Camdessus, another Frenchman who headed the IMF.

The international and domestic media waited in earnest for Camdessus’s pronouncements after meeting with Russian President Boris Yeltsin and Prime Mininister Victor Chernomyrdin. Would the IMF approve another multi-billion tranche of funding to prop up the nascent but floundering Russian economy? What did the Russians agree to, in terms of shutting off their money printing presses and further tighting social spending, to meet with Camdessus’ blessing?

The IMF was a creation of World War II designed to help facilitate a system of fixed exchange rates for global curencies so trade would not be impeded. That was a worthy post-war goal. A sister organization, the World Bank, was set up to help developing countries set up free markets and maybe democracies through bank loans. By tradition, the World Bank was always headed by an American and the IMF, by a European. Both organizations are headquartered in Washington and the U.S. government has heavily bankrolled both.

Somehow along the way, the IMF’s role changed when the fixed exchange rate climate shifted in the 1970s. Without asking you or me, the IMF’s purpose suddenly shifted making short term loans to countries with sovereign debt issues, such as Greece now or Russia back in the 1990s.

As travel and trade expanded and economices became more global, it seems that the IMF has been set up as some kind of new world government that average folk have no hand in electing. In the case of Russia, the IMF made decisions that affected, and, in fact, were enormously harmful, to ordinary Russians who woke up one day and found that the old Communist social system had gone away. The system had provided them with poor to middling cradle-to-grave services, usually doled out by state-owned enterprises.

Suddenly the IMFers from INSEAD or Harvard were ordering the Russian government to clamp down on spending for their own people who had nowhere else to turn. It was as if a shadow, global and omnipotent government had suddenly taken control.

I’ll never fogot what one young Soviet manager told me. He was a Party member who ended up at Harvard Busines School. He was shocked at how these glib, well-dressed foreigners stepped off the airplane at Sheremeteyevo and suddenly tossed millions of Russians even farther into poverty. While they struggled, and were confounded by a “voucher” system to privatize state-owned inudstries, a new class of oligarch sharpies took over. In time, the old “Siloviki” or power types from the KGB and Interior Ministries had regrouped as privatized power vendors and started running the oligarchs.

So, we ended up with the Putins and the Medvedevs and it all comes to you thanks to the IMF.

Strauss Kahn may be innocent, but the entire story is so strange that some elements are probably true. If they are, it reveals an overwhelming sense of arrogance, revealing that the real threat to liberty lies not in the White House or on Capitol Hill as many conservatives would have you believe. It could lie elsewhere.

Peter Galuszka

Share this article


(comments below)


(comments below)


Leave a Reply