So Much for "Rules-Based" Policy at the IMF
According to the website of the International Monetary Fund (IMF), the IMF’s purpose is:
to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.
One of the ways in which the IMF does that is by providing loans to member countries that are experiencing momentary difficulties. One of the IMF’s lending rules had been that the Fund would not continue to support countries that failed to repay official creditors (i.e. other governments). Recently the IMF changed those rules so that it may continue to support a country that defaults on a payment to one of its official creditors. The beneficiary of that rule change? Ukraine.
And which country is Ukraine likely not to repay? Russia. The Ukrainian government is attempting to restructure its international debt obligations and it still owes Russia $3 billion. While Russia has begun to make overtures to Ukraine in an attempt to overcome the repayment impasse, Ukraine appears to be digging in its heels. While some speculate that the Russian government will eventually restructure the debt Ukraine owes it, the IMF apparently wanted to make sure that if Ukraine does end up defaulting on its debt to Russia that it is still able to receive IMF assistance.
Will any other countries benefit from that rule change? Probably only if they’re also in conflict with Russia. Rule changes like this give the lie to the idea that the IMF is some sort of disinterested organization looking out solely for the good of the international community. In reality, the organization is as political as any. As a remnant of the Bretton Woods system, it still is dominated by the United States. Stay on Washington’s good side and the IMF will bend over backwards to give you money. Get on Washington’s bad side and watch your lifeline disappear.
Incidents like this also underscore the futility of trusting large political organizations to be bound by rules. Rules, after all, are made to be broken. Just like it is naive to imagine that the US government would bind itself by the strictures of the Constitution, or that the Federal Reserve would bind itself to a monetary policy rule, so it is also naive to imagine that large multilateral institutions will follow their own rules. Any rules that become burdensome will be quietly ignored or, if that would be too noticeable, changed with little fanfare.