Conflicted Principals, Uncertain Agency: The International Monetary Fund and the Great Recession

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.

The G20’s resuscitation of the IMF cannot be simply interpreted as indicating certainty regarding the future of the institution.
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.
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.
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.
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.