Whither the IMF?

A robust global economy isn’t good for everyone. Take the IMF, for example. Early repayments by certain debtor countries, downwardly revised estimates of the need for its services this year, and competition from the private market are taking a huge bite out of projected 2007 income. The tenor of the report seems to treat this as a challenge to year ahead revenues, but there’s some rather large-writ handwriting on the wall, we think. An institution born out of a long string of political disasters and resultant economic crises is bound to suffer as the global political economy has gradually returned to sounder footing. Is this merely a cyclical downswing, driven in part by global liquidity and economic activity? Or is this a dinosaur institution being forced to contemplate its fate?

We tend to think it’s the latter, but we’ll throw on a hedge, and toss in a caveat. Our hedge is that if large central banks push real interest rates to an extreme, the IMF’s services will be back in demand (though we’re not sure that their charter will allow them to bail out over leveraged U.S. consumers and homeowners…). The caveat we’ll offer is supported by basic supply and demand, and by more interesting areas such as institutional economics and power relationships: the IMF is likely to remain the lender of last resort to the most extreme basket case countries, i.e., those that have screwed up their public policies – and domestic economies – royally. There aren’t a whole lot of these countries in the world, but those that fit the description will be forced to pay a relatively hefty fee for the IMF’s services, especially if we assume that private sector alternatives will be unwilling to step into these more extreme situations.

You can peruse the full report here: http://www.imf.org/external/NP/pp/eng/2006/120706.pdf