By Annys Shin and Thomas Heath
Washington Post Staff Writers
Saturday, April 4, 2009

A year ago, the International Monetary Fund was in a funk. Its handling of past financial crises had made it deeply unpopular. Its finances were shaky. A fifth of the staff was looking to leave. Without new crises to address, doubts about its relevance grew even among insiders
As one veteran staffer put it, "It was a period of introspection."

The second-guessing ended in September as the global economic crisis took hold and countries again turned to the fund for advice and financial support. Its comeback became official this week when world leaders meeting in London pledged to quadruple its resources and strengthen its mandate.

"The IMF has suffered a slow deterioration in morale," said Simon Johnson, a former IMF chief economist. "The Asian crisis was traumatic . . . they lost a lot of confidence."

Staff reductions last year added to the humiliation and embarrassment, he said. "Now it's night and day."

The mood in the hallways "is one of invigoration," said a senior-level IMF official, who declined to be identified because he was not authorized to speak. "People are pretty busy and they are happy to be helping . . . so they feel validated."

The Fund, which has 2,370 employees, most based in Washington, has repositioned itself periodically since its creation after World War II. Its initial focus was to oversee the exchange rate system established under the Bretton Woods agreements. That role ended in the 1970s. In the 1980s, it emerged as the manager of the Latin American debt crisis. In the 1990s, it stepped in to deal with the Mexican and East Asian financial crises.

During this crisis, the IMF regained its stature partly by default. In the months leading up to this week's meeting of the Group of 20 industrialized and developing nations in London, British Prime Minister Gordon Brown talked of creating new international institutions. But in the end, the G-20 chose not to go through the trouble and chose to work with existing organizations.

Former and current IMF officials say the fund's leadership also deserves credit for actively seeking a more central role and for making changes that helped overcome some of the potential objections.

Last month, the IMF revamped its lending practices to make it easier for countries with strong economic policies to borrow more, faster and with fewer strings attached. The centerpiece is a new flexible line of credit designed to be used as a preventive measure.

IMF officials said the fund was trying to respond to long-standing criticism that the organization imposes conditions on developing nations that are too harsh and even harmful to their economies. The flexible credit line replaces a credit line created last fall that had no takers because countries said it offered too little money and too rigid terms.

In a small sign of success, Mexico recently said it would use the new credit line. But South Korea and Singapore still refuse to do so.

Domenico Lombardi, a former IMF official, said ignoring such concerns would have been a major misstep. "This crisis really originated within the advanced economies," he said. "Putting a heavy burden of conditions on emerging economies would add insult to injury."

The members of the G-20 said they would support an allocation of $250 billion in SDRs, a type of currency used only by the IMF that can be exchanged for hard currency. IMF members hold SDRs roughly in proportion to their size, and increasing the allocation would directly benefit developing countries that have been hit hard by the recession. Richer countries such as those in Western Europe can also lend their SDRs to countries that need help, such as those in Eastern and Central Europe.

The increase in lending resources reflects the scale of the needs created by the recession and signals a mounting workload at the IMF.

However, the fund was not given additional money for its operations, and some inside question whether, after staff reductions and a recent spike in retirements, the institution will soon become overburdened.

"We are now overstretched, and we probably went too far [with staff reductions last year]," said the senior IMF official. "We need the resources to help our membership."

The fund has stepped up recruiting. And the financial crisis has spurred interest. The total number of applicants for professional positions in the first quarter of 2009 exceeded that of the same period in 2007 and 2008, said spokeswoman Conny Lotze.

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