Shifting power equations: Russia and the IMF

September 26, 2007

Today, an innocent press release from the IMF following the visit of its Managing Director to Russia, reveals a lot about Russia’s position and the IMF’s standing in the world…

Russia cleared all its debt towards the IMF a few years ago, and with the clearing of its remaining Paris Club debt last year Russia has no more creditors to whom to report to. Russia is flush with cash, and a well-managed Stabilization Fund ensures that the Russian government will be able to weather a still very hypothetical decline in oil prices (now peaking at around 80$ a barrel…).

The IMF for its part is in crisis and disarray. The finances are not going too well – this is also because, on the contrary, its former debtors are doing well. Let’s say the IMF is a bit victim of its success – with Latin American and other governments being now good at macroeconomic stability and fiscal austerity, they are applying what the IMF was always preaching. More structurally, the Fund’s legitimacy is strongly in doubt. Its errors in the Asian Crisis have cost it dearly. Today, the way European countries refuse to really let loose on the number of seats they have on the managing board (there was recently an appeal to have one single EU seat there), and all the haggling around the nomination of yet another Western European as Managing Director, the French Dominique Strauss-Kahn, show that the fund’s management structure does not reflect the reality of the world economy.

Russia made a point of proposing an alternative candidate to Mr Strauss-Kahn, a Czech former central banker, Josef Tosovksy. This move echoes Putin’s speech at the G8 meeting in July this year, saying that one of the other institutions suffering a lot these days, the World Trade Organization, was “undemocratic, unflexible, and archaic” Coming from a government to whom the same words can be applied, this is blunt. But given the current blip in leadership coming from the US and Europe, this is ammunition for an emerging and assertive Russia. Who can contest Russia’s position in the IMF Managing Director succession issue? It is right to do so. You can’t even criticize Russia on IMF-related grounds. It is probably one of the Fund’s best executrioners – its finances and the way they are management are almost perfect – except a bit of pre-electoral but also much needed social spending. Mr Strauss-Kahn’s country, France, on the contrary, was just declared bankrupt by its Prime Minister!

People who want to see Russia go towards a real rule-of-law based market economy supporting democracy (not a monopolistic Russia Inc favoouring authoritarianism as it is now), are likely to be saddened by De Rato’s relatively weak statements, though. He does call for “priority to measures aimed at diversifying the economy and improving the investment climate, including public administration, banking, utilities reform, and early WTO accession.” De Rato’s visit is obviously politically motivated , aimed at gathering  support for undergoing reforms in the IMF. And the IMF’s role is financial stability, not economic restructuring per se.

Yet there is something troubling about the obvious lack of impact the sentence I just quoted is likely to have…. In the meantime, corruption is on the rise in Russia. Transparency International just released its 2007 Corruption Perceptions Index. Russia slid from rank 121 last year to rank 143 this year…..

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