The 21st century dispute between Europe and Russia over the Crimea won’t include another Charge of the Light Brigade. But the financial cavalry did come riding to the rescue, in the form of the International Monetary Fund.
In late March, the IMF agreed to offer between $14 billion and $18 billion of funding and support to Ukraine’s government, as it attempts to wean itself from the cheap financing and energy that Russia had used to keep the former Ukrainian government firmly in its thrall.
The IMF, led since 2011 by Christine Lagarde, a silver-haired French corporate lawyer who will appear this week at the Women in the World Summit, was founded, along with the World Bank, at the end of World War II. Together, the two institutions represented an attempt by the victorious allies to forge a new financial world order. Dominated by the U.S. and Europe, the IMF used its cash and financial expertise to act as a paternalistic force—helping developing countries construct budgets, organize their finances, obtain funds for needed investment, and riding to the rescue in the case of crises. In return for loans, countries must submit to the IMF’s “surveillance” (oversight) and follow its technical advice. The IMF often demanded adherence to what became known as the Washington Consensus—free-trade, fiscal austerity, and reform.
But in the past decade, the tumult of globalization has upended the IMF’s role. Rising prosperity and growth in emerging markets rendered much of its funding unnecessary. From China to India, from sub-Saharan Africa to Brazil, more and more countries were able to finance themselves and one another. With money flooding into every nook and cranny of the global economy, many of the IMF’s traditional clients simply didn’t need it anymore. By 2007, the IMF’s book of loans had dwindled to a historic low.
After the 2008 financial crisis, however, the IMF suddenly found a huge demand for its resources in its own backyard: Europe. In 2010, the IMF emerged as a key member of the so-called “Troika”—along with the European Central Bank and European Commission—in putting together a bailout package for Greece, providing about 30 billion Euros out of a 110 billion Euro package. In the ensuing months, the IMF, which had dunned its 188 members to boost its resources in 2008, helped cobble together similar deals for comparatively wealthy countries: Ireland, and then Portugal and Spain. Last May, when Cyprus ran into trouble, it came up with about $1.3 billion in funds, or about ten percent of the total.
Since 2011, Lagarde, who ran the international law firm Baker & McKenzie before serving as France’s first female finance minister and speaks accent-less English, has been the public face of the new IMF. As such, she walks a tightrope. European governments aren’t accustomed to having groups like the IMF ride herd on their finances. Poorer countries wonder why resources are being deployed to bail out some of the wealthiest nations on earth. Governance must shift to accommodate the changing realities. “Emerging market and developing countries are contributing more to global economic growth, and the IMF needs to take account of these changes,” as Lagarde wrote in The Wall Street Journal recently. An effort kicked off in 2010 aims to boost both the financial contributions and voting power of China, Turkey, Mexico, Brazil and other emerging powers. And that’s not going over particularly well with Republicans in the House of Representatives. Even though the U.S. is the largest and most dominant shareholder at the IMF, Republicans have been slow to approve more funding.
In some ways, Lagarde has bucked tradition. “She’s a very different type of leader for the IMF,” said Ted Truman, a fellow at the Peterson Institute for International Economics. “Her predecessors were all advanced technocrats, and she has been more of an executive.” Observers say Lagarde runs the famously bureaucratic organization in a more collegial fashion. She has been willing to challenge orthodoxy. The IMF has often been accused of being a tool of the world’s largest banks. But an IMF report (PDF) issued Monday tabulated and railed against the massive subsidies enjoyed by too-big-to-fail banks. And Lagarde has suggested that private bondholders who invested in the debt of financially troubled countries like Greece should face losses on their holdings—a view regarded as heretical in Europe’s corridors of power.
With its offer to help Ukraine, the IMF is establishing a new precedent. Ukraine isn’t a member of the Eurozone. This time, it is the only member of the Troika offering financial aid. There’s another new precedent at work here: women may be largely driving the dynamic response to Putin’s aggression. German Chancellor Angela Merkel is leading the European political response. Yulia Tomyshenko has thrown her hat for the May 25 Ukrainian presidential election. And Lagarde has thrown the struggling country a vital lifeline.
Lagarde will appear at the Women in the World Summit on April 3. Watch the livestream here.