Because of the global recession that is said to affect the world’s poorest the most, the International Monetary Fund is in focus once again. The crisis has brought it back from the dead. ‘Two years ago the world’s main international economic institution was heading for irrelevance, its homilies ignored by rich countries, its advice despised in poorer ones and its lending unnecessary in a world flush with private capital. Today the fund is widely hailed as a flexible and innovative crisis-responder. It has committed over $160 billion in a host of new loans and credit lines, up from barely more than $1 billion in 2007. Its lending capacity is being trebled to $750 billion.’

The economic crisis has been good to the IMF, the official emergency lender in tough times. The institution is important once again. Dominique Strauss-Kahn, IMF chief, has pushed through ‘reforms that allow the fund to dole out large amounts of money fast, while convincing a broad array of countries, including rising powers like China, India and Brazil, to contribute to its coffers.’ He also wants the fund to grow to as much as $2 trillion.

But the IMF may not necessarily be seen as the panacea for these times of crisis. After all, it is still, first and foremost, a lending institution whose capital comes from rich-country governments.

There is the speculation that ‘emerging economies are unlikely to rely on it as a lender of last resort unless there are clear rules that promise free lending in future panics. Such promises, though necessary to convince the prudent to rely on the fund, will however tempt some countries to run profligate policies. At the same time the fund still has no clout over countries it does not lend to, even if their policies hurt the global economy (as the excess build-up of reserves, especially in China, surely did). This poisonous combination could fuel instability rather than assuage it.’

Via Economist.com