Economy banking on IMF success

WASHINGTON — Not long ago, the International Monetary Fund (IMF) seemed headed for relic status, but these days it's flying high again, rolling out ambitious plans to blanket an economically distressed world in dollars. Even grander designs are on the drawing board.

Yet the money might not cover the job and those lofty plans might never get approved.

Failure would carry a heavy political price because the Group of 20 countries have made the lending agency the linchpin in their efforts to combat the worst economic downturn since the Great Depression.

Finance ministers from those nations met over the weekend to hammer out details of the $1.1 trillion plan that President Obama and his G-20 counterparts announced at their recent summit in London.

Major developing nations scored a victory Saturday when the agency said it would sell bonds to help raise a portion of an expanded $500 billion loan fund that is the biggest part of the G-20 support program for the IMF.

China, Brazil, Russia and India had balked at providing contributions under the original approach favored by the U.S. and Europe.

Even with a deal, however, it's not clear the IMF's pool will have enough to jump-start the economy.

The IMF estimates that before the downturn bottoms out, the agency could provide $187 billion or so to recession-battered nations. That would dwarf the $86 billion during the 1997-98 Asian crisis, which leveled countries from Thailand to Russia and Argentina.

The projected lending spree is a change from a year ago, when the IMF appeared headed to irrelevance. The long global boom meant countries were coming much less often, hat in hand, seeking assistance.

The IMF was scrambling to pay its bills and trim down. Its major source of income, loan repayments, had fallen sharply.

Today the agency is expanding and approving loans to a string of countries, but it's not clear whether the boost in resources will be enough.

The key is whether the broken banking systems in the United States and elsewhere can be repaired quickly enough so normal lending can resume to consumers and businesses.

This lending is needed to spur an economic rebound in industrial countries, which leads to increased demand for developing nations' exports.

Despite the $700 billion bank bailout, credit flows in the United States have not reached the level to get a sustained recovery going.

More problems lie ahead. Banks are struggling with billions of dollars in losses on mortgage loans and rising bad debt in commercial real estate and credit cards.

"We would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy early last fall," Treasury Secretary Timothy Geithner said somberly at the weekend meetings of the IMF and World Bank.

One of the Obama administration's main worries is that other countries will not be bold enough in their stimulus efforts or in fixing their own banking systems as loan losses mount.

An IMF study estimated losses on U.S. loans and securities at $2.7 trillion through 2010, double the estimate of six months ago; global losses were put at $4.1 trillion.

The agency also faces questions about how it should change to better cope with the problems of a global economy far different from what existed when the institution was created in the 1940s.

Some suggest ideas that would transform the agency into a kind of U.N. Security Council for economic matters, with the power to blow the whistle when economic practices in any country threaten the global economy.

But the IMF has trouble exercising the limited monitoring powers it has. Rich and poor nations alike bristle at even the mild suggestions contained in the IMF's annual performance reviews.

Major developing countries such as China, Brazil and India are pushing for greater voting powers at the IMF in line with their growing roles in the world economy.

This dispute is threatening to derail the efforts to boost IMF resources.

The battle over tiny changes in voting shares is evidence of the hurdles to overcome before the IMF can increase its powers as the globe's economic traffic cop.