Who’ll bail out the IMF?

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In January 2008, the IMF’s managing director, Dominique Strauss-Kahn, sent out a confidential document to the fund’s 2,400 full-time staff, telling them to get ready for the axe.

The memo said the staff should prepare for the “trauma” of sizeable downsizing, with around a sixth of the staff to be fired, and the staff budget of the fund to be reduced by US$100mn. “This is not a good time for staff”, the memo read. “Their expectation of a full career at the fund in exchange for their unflinching dedication and loyalty is in question.”

The fund had lost the great influence and power it had enjoyed during the 1990s, when it leant billions of dollars to crisis-hit Asian economies. Its power, then, was symbolised in the famous photo of then IMF director Michel Camdessus standing with his arms crossed like a strict schoolmaster, while the elderly Indonesian President Suharto bent over a desk to sign a humiliatingly-punitive IMF bail-out.

Emerging market governments learnt the lesson of that time. Many of them built up huge foreign exchange (FX) reserves, and bought back much of their existing public debt, so that they would never have to genuflect before the IMF. It gradually faded from the headlines and from the markets. “Some of my younger staff don’t even know what the words IMF stand for,” says Richard Luddington, vice-chairman of general capital markets at UBS.

Ousmene Mandeng, head of public sector investment advisory at Ashmore Investment Management, says: “I used to work at the IMF until October. When I left, I had the impression the fund would never play the role it once had in 1998. In hindsight, it seems absurd.”