Delamaide: IMF faces tipping point over Greece

Darrell Delamaide | Special for USA TODAY

WASHINGTON — It was perhaps inevitable that the Greek crisis would hijack the spring meeting of International Monetary Fund this week, but the damage to the international lending agency could grow much worse as the situation in Europe becomes increasingly acute.

The standoff between a new Greek government seeking debt relief after five years of grinding recession and authorities at the IMF and European Union, who were unbending in their demands to follow through on further austerity measures to get more bailout money, dominated discussions at the meeting that brings economic policymakers from around the world.

Greece faces a deadline Friday to submit a list of specific reforms to the European Union that will unlock nearly $8 billion in bailout funds that it needs to meet loan repayments falling due next month.

The Greek imbroglio overshadowed other messages from IMF officials this week regarding new sources of financial instability in the world, the need to stimulate economies to more vigorous growth and even discussion about other financial and geopolitical hot spots, such as Ukraine.

But the unwillingness of IMF Managing Director Christine Lagarde and her staff to countenance any relief for Greece stands to make the agency an accessory to the potential turmoil that could spread well beyond Greece as the chances for a reasonable, agreed solution to the crisis grow slim.

A debacle in Greece would further tarnish the reputation of an agency that has already seen its credibility and influence diminished.

It was perhaps a fitting sideshow to the drama in Washington that a former IMF managing director, Rodrigo Rato, was briefly detained Thursday in Spain as part of a money-laundering investigation and may be charged in the case, even as he is being investigated for other infractions.

Rato led the IMF from 2004 to 2007, and was succeeded by Dominique Strauss-Kahn, a political heavyweight who aspired to the presidency of France but who had to leave the IMF post under a cloud of scandal in 2011 over charges of sexual assault against a New York hotel maid.

Lagarde, then French finance minister, was parachuted in to take his place, though she herself is involved in a long-running judicial probe over an arbitration process she approved that awarded half a billion dollars to a businessman with ties to her center-right political party.

For the record, Rato denies any wrongdoing. The charges against Strauss-Kahn in New York, and subsequent charges in France for involvement in a prostitution ring, were dropped. And no charges have been brought against Lagarde, who also denies any wrondoing.

Nonetheless, the legal travails of a succession of IMF leaders have diminished its ability to take the moral high ground in forcing lenders to implement the difficult policy measures that are the conditions for its loans.

But that is not the only problem. The neoliberal economic principles enshrined in the IMF economic prescription — which generally call for a reduction in government spending and higher taxes even in the midst of recession — are part of a so-called "Washington consensus" that is finding very little consensus in other parts of the world.

Many Asian countries still resent the IMF intervention during the region's financial crisis in 1997. Countries have bolstered currency reserves and taken other steps to make sure they don't have to rely on IMF aid, with its painful conditions, ever again.

Developing countries, unhappy about the inflexible lending conditions and their lack of influence in an organization stacked in favor of Western countries, are setting up alternatives to the IMF and its sister institution, the World Bank.

U.S. resistance to any changes in IMF structure have only confirmed the belief among many that the primary purpose of the agency's interventions is to protect international creditors, not to promote growth or recovery in countries experiencing a crisis.

One of the complaints of the Greek government is that 95% of the "aid" provided to Greece in the past few years has gone simply to pay off loans owed to banks in Germany, France and elsewhere, providing no benefit to the people and increasing the country's debt burden.

At an event at Brookings this week, Greek Finance Minister Yannis Varoufakis said Greece would no longer take part in this "extend and pretend" of rolling over debt.

"We've tried that medicine, but it hasn't worked," he told a standing-room-only crowd at the think tank.

Former IMF economist Peter Doyle, a 20-year veteran who left the agency in anger in 2012 saying he was "ashamed" he had ever worked there, this week urged his fellow economists "to turn on the IMF in public."

Citing several leading economists by name, Doyle noted they had expressed support of the Greek position sotto voce. He called upon these economists to "shout, together, right now," to be on the record against the IMF stance before the "Euro-tinder box" explodes.

There were no shouts in Washington this week, but the murmuring is getting much louder. In time, this spring meeting may prove to be a tipping point for IMF credibility and foreshadow a rapid erosion of its influence.

Business columnist Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for news service, Barron's, Institutional Investor and Bloomberg News service, among others