The IMF downsizes | It's Mostly Firing | Economist.com

Feb 7th 2008 | WASHINGTON, DC
From The Economist print edition

The dispenser of austerity is forced to tighten its own belt


THE letters IMF, goes an old jibe, stand for “It's Mostly Fiscal”. The International Monetary Fund has a long-standing reputation for dispensing nasty budgetary medicine to countries in economic distress. Whatever the problem, goes the caricature, well-paid bureaucrats from 19th Street demand that spending be cut.

This caricature may need revising. The fund has suddenly become a fan of fiscal stimulus. Its new boss, Dominique Strauss-Kahn, a former French finance minister, wants a fiscal boost—in America and other countries—to combat the risks of global recession. “Medium-term fiscal policy is all about saving for a rainy day,” Mr Strauss-Kahn argued in a recent commentary in the Financial Times. “It is now raining.”

And just as he is touting stimulus abroad, Mr Strauss-Kahn is demanding austerity at home. For the IMF finds itself in a big fiscal hole. Its $1 billion budget is traditionally funded by the small profit it makes on lending money to cash-strapped countries. But IMF lending has collapsed in recent years as developing countries have improved their economic management. As a result, the fund looks set to run a deficit of some $400m a year for the foreseeable future.

The organisation still has a fat cushion of reserves to draw on, but clearly its business model needs to change. Last year a group of “wise men” suggested creating an endowment to fund the IMF's expenses by selling some of its large gold stocks. Such a move requires the approval of the fund's member countries, which means a vote by America's Congress. Mr Strauss-Kahn, it seems, reckons he has a better chance of achieving that if the IMF develops its own cost-control plans quickly.

So the fund is downsizing. Some $100m is to be saved by getting rid of 380 staff, a reduction of around 15%. Preliminary documents obtained by The Economist suggest big cuts in most departments, and particularly among managers. Many departments, it seems, need to reduce their headcount of “B” level staff by 30-40%.

Addressing employees this week, Mr Strauss-Kahn said he hoped many departures would be voluntary. Few insiders think that is likely: the pay-offs, they moan, are too stingy, and with financial markets in turmoil, alternative employment options look grim. But for outsiders it is hard to resist a wry smile. The dispensers of fiscal rectitude are finally getting a taste of their own medicine.