Georgieva data scandal deepens IMF identity crisis
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The IMF is in an identity crisis. Its traditional role as lender of last resort has been usurped by central banks, which have injected trillions into financial markets. Two of its biggest shareholders – the United States and China – disagree. And the reputation of the Scrupulous Data Fund is compromised by a scandal that has engulfed its chief executive, Kristalina Georgieva, since her days as head of the World Bank. In fact, the fund may never be the same again.
For most rich and middle-income countries, the IMF had long since lost its importance, in part thanks to the quantitative easing programs put in place since the 2008 financial crisis. stringent conditions, when investors in short supply are eager to lend just as much, almost as cheaply, without any strings attached? As a senior IMF official put it: “the central banks have put us out of business”.
The printing of Covid-19 money has only accelerated this trend. During the pandemic, the IMF provided emergency assistance to 100 countries. Although the aid was effective, it was only for minor amounts, as all of the recipients ranked among the smallest and poorest economies in the world.
Still, a more developmental role for the IMF may well suit Georgieva’s skills. As the former Managing Director of the World Bank, she is seen as a progressive economist compared to some of her more capped predecessors in the fund. “Spend all you can and keep the receipts,” has been her pandemic mantra. But this represents a major shift from the IMF’s usual role of providing emergency liquidity support.
Illustrating the change, the creation last month of $ 650 billion in SDRs. The fund distributed these special drawing rights, quasi-currency, to all of its members in the form of free money, at their convenience. For some, the pandemic demanded such a response. For others, the rules have been bent to distribute a fiscal boost through the back door – including disreputable authoritarians like Belarus President Alexander Lukashenko.
The SDR program also marked the end, critics say, of the IMF’s usual country programs, framed within a prudent framework that includes a path to recovery, detailed debt analyzes and other aspects of public policy. . Disbursements to Ukraine under a $ 5 billion IMF program, for example, have been repeatedly delayed by its inability to fight corruption.
Instead, there is now a risk of dangerous spending for everyone. As World Bank chief economist Carmen Reinhart said of some of the latest IMF loan recipients: “In some cases the evidence will be overwhelming that this is not a liquidity but a solvency problem.
In the midst of this identity crisis has now landed a scandal that threatens to destroy one of the fund’s most valuable remaining assets: credibility. World Bank CEO Georgieva has been leading efforts to artificially raise China’s ranking in the lender’s influential annual Doing Business report, according to an independent investigation. Worse yet, she was looking to raise capital for the bank from China and others at the time.
The IMF’s board is investigating. Meanwhile, staff say the scandal jeopardized the IMF’s ability to speak the truth to power. If Georgieva manipulated the data at China’s request to the World Bank, wouldn’t the IMF, under his leadership, now also bow to other governments?
In the end, it may not be allegedly questionable data or the IMF’s change of leadership that determines its fate. If she does, it will likely be because Georgieva has sided with the wrong side of the battle between the United States and China, the fund’s largest and third largest shareholders.
Significantly, last week, U.S. Democrats and Republicans on the House Financial Services Committee cited the World Bank’s investigation and questioned his suitability to run the fund. Georgieva denied the allegations and fought back. However, whoever ultimately emerges as the victor in this increasingly uninspiring affair is unlikely to be the IMF.