Conflicted Principals, Uncertain Agency: The International Monetary Fund and the Great Recession
| DOI | http://doi.org/10.1111/j.1758-5899.2011.00096.x |
| Published date | 01 February 2012 |
| Date | 01 February 2012 |
| Author | Ayse Kaya |
Conflicted Principals, Uncertain
Agency: The International Monetary
Fund and the Great Recession
Ayse Kaya
Swarthmore College
Abstract
The G20’s renewal of faith in the International Monetary Fund (IMF) during the 2008 financial crisis appears to have
reversed the IMF’s declining relevance evident in the years preceding the crisis. This article examines this putative
revival of the IMF, arguing that the G20’s actions contained a paradox of delegation. On the one hand, the nature of
the G20’s replenishment of the IMF’s resources during the crisis (mostly through credit lines available to the IMF) as
well as the independence the major G20 economies can afford to have from the IMF (given that they are not
beholden to its resources) has meant that the G20 countries faced low sovereignty costs in reviving the IMF. On the
other hand, truly re-establishing the IMF’s relevance would impose higher sovereignty costs, specifically in the form of
strengthened IMF surveillance over G20 economies. This paradox of delegation suggests that the G20’s action toward
the IMF does not inform properly whether the G20 states have contemplated the trade-off between suffering
sovereignty costs and achieving gains from delegation. In this regard, the proper role of the IMF in the governance of
the global economy remains uncertain.
Policy Implications
•The G20’s resuscitation of the IMF cannot be simply interpreted as indicating certainty regarding the future of the
institution.
•In order for the IMF to fulfill its key tasks, particularly surveillance of global economic conditions, as envisioned by
key members of the G20, these states need to permit the IMF to play the role of a mediator and technical expert in
close coordination of their policies.
•The G20 states should resist the temptation to forum shop, namely charge other institutions with tasks similar to
those of the IMF with a view to dispersing ⁄avoiding sovereignty costs.
•It is no longer viable to hold on to prior assumptions and frameworks regarding the distribution of influence among
states vis-à-vis the IMF – scholarly and policy works need to recognize large emerging economies as key principals
of the Fund.
•At the same time, the IMF needs to enhance the evenhandedness of its analysis and advice in order to increase key
member states’ perceptions of its effectiveness and fairness.
Prior to the G20’s putative revival of the International
Monetary Fund (IMF) in the midst of the 2008 financial
crisis,
1
the IMF had appeared to slip into irrelevance. In
2007, its outstanding credit to member states had
dipped to roughly 10 per cent of its 2003 level.
2
With
lower income, the IMF had to cut about 15 per cent
of its staff soon after its then managing director, Domi-
nique Strauss-Kahn, took office in 2007 (The Economist,
2009). The debate about its relevance became intense
in the years leading up to the 2008 financial crisis.
Mervyn King (2006, p. 1), governor of the Bank of Eng-
land, remarked: ‘Certainly, the Fund’s remit is unclear.
Its lending activities have waned, and its role in the
international monetary system is obscure’. Even
Strauss-Kahn (2007) admitted prior to the crisis that
‘What might be at stake today is the very existence of
the IMF as the major institution providing financial sta-
bility to the world’. As another expert put it, ‘[p]rior to
the crisis the institution had seemed moribund’
(Woods, 2010, p. 51).
Global Policy Volume 3 . Issue 1 . February 2012
ª2011 London School of Economics and Political Science and John Wiley & Sons Ltd. Global Policy (2012) 3:1 doi: 10.1111/j.1758-5899.2011.00096.x
Research Article
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